U.S. Markets closed

Rising profits: An analysis of Williams Companies’ 2Q14 results

Avik Chowdhury

Everything investors need to know about Williams Companies (Part 4 of 12)

(Continued from Part 3)

Adjusted profits are up

For 2Q14, Williams Companies (WMB) recorded $513 million in adjusted segment profit. This total is up 19% from the $431 million it recorded in 2Q13. Williams’ adjusted segment profit margin improved to ~31% in 2Q14 from 24% a year ago.

Segment profits include operating profits from WMB’s divisions—namely, Williams Partners (WPZ), Williams NGL & Petchem Services, Access Midstream Partners (ACMP), and other assets.

WPZ accounts for almost all of WMP’s profits

WPZ accounted for almost all of WMB’s segment profits in 2Q14. Adjusted segment profits from WPZ increased to $513 million in 2Q14 from $431 million in 2Q13.

The increase included 7% growth in fee-based revenues compared to second-quarter 2013, which partially offset lower NGL margins.

Unadjusted profits and margins are down in 2Q14

Excluding adjustments, WMB’s segment profit fell to $395 million in 2Q14 from $456 million in 2Q13. This change was a decrease of ~13%.

Williams Partners (WPZ) recorded $119 million adjustments in 2Q14, which increased its gross margin. The adjustments were primarily on account of $42 million in insurance recoveries related to the Geismar incident and a Canadian asset dropdown to WPZ.

The unadjusted segment profit margin—a ratio of segment profits to revenues—decreased to 23.5% in 2Q14 from 25.8% in the corresponding quarter last year.

WMB’s net income decreased 34%, to $127 million in 2Q14 from $192 million in 2Q13.

A lower NGL margin and 27% higher interest costs due to the issuance of new debt contributed to the fall in net income. Increased fee-based revenues, however, positively affected the company’s results.

Year-to-date performance deteriorates

For the first six months of 2014, WMB’s revenues decreased 4% to ~$3.4 billion from the ~$3.6 billion recorded for the first six months of 2013.

Net income for 1H14 was $243 million, or $0.35 per share, compared with a net income of $303 million, or $0.44 per share, in 1H13.

The net income margin also fell to 7.1% from 8.5%. The drop resulted primarily from lower NGL margins due to higher natural gas prices and lower volume due to an expiry of a customer contract in WPZ West.

To learn more about concerns for Williams Companies, please see Part 11 of this series.

Key stocks and ETFs

Williams Companies (WMB) is a component of the Energy Select Sector SPDR (XLE). Other companies in the midstream energy processing and transportation space include Kinder Morgan Energy (KMP) and Spectra Energy Corporation (SE). Some of these companies are also components of XLE and the Alerian MLP ETF (AMLP).

Continue to Part 5

Browse this series on Market Realist: