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Williams Companies Shakes Off Asset Sales to End 2018 on a High Note

Matthew DiLallo, The Motley Fool

Williams Companies' (NYSE: WMB) growth engine continued gaining steam during the fourth quarter as it more than offset the impact of asset sales to deliver record-setting results for the full year. Helping fuel the strong quarter was the recent completion of several expansion projects, including Atlantic Sunrise, which started service in early October. That trend should continue in 2019 since the company has a few more expansions lined up that will keep its growth engine well fueled.

Drilling down into the numbers

Metric

Q4 2018

Q4 2017

Change (YOY)

Adjusted EBITDA

$1.197 billion

$1.160 billion

3.2%

Distributable cash flow

$748 million

$629 million

18.9%

Dividend coverage ratio

1.82 times

1.57 times

15.9%

Data source: Williams Companies. YOY = year over year. EBITDA = earnings before interest, taxes, depreciation, and amortization.

Adjusted EBITDA edged higher during the quarter, pushing the company's full-year total to $4.638 billion, which was a 2.4% improvement from 2017's level and at the upper end of the company's $4.45 billion to $4.65 billion guidance range. Distributable cash flow, meanwhile, expanded at an even faster pace during the quarter, boosting its full-year total to $2.872 billion, which was an 11.3% increase from last year's result and near the top end of the company's $2.6 billion to $2.9 billion forecast.

Fueling the fine finish to the year was growth in the company's Atlantic-Gulf and northeast gathering and processing (G&P) segments, which more than offset weakness out west:

Williams Companies earnings by segment in the fourth quarter of 2018 and 2017

Data source: Williams Companies. Chart by the author.

Earnings in the Atlantic-Gulf segment surged 22% year over year, driven mainly by expansion projects on the Transco pipeline, including Atlantic Sunrise. That helped more than offset the impact from the sale of several smaller pipeline systems in the Gulf Coast area, which it sold during the fourth quarter.

Northeast G&P earnings, meanwhile, rocketed nearly 28% year over year due to higher volumes on several of the company's systems serving the Marcellus and Utica shale regions. Driving that volume growth was the overall improvement in the energy market last year due to higher commodity prices and greater infrastructure availability.

Williams Companies' west segment, on the other hand, reported a more than 25% year-over-year decrease in earnings. The main driver of the decline was the sale of the company's Four Corner Area assets in October. Though lower natural gas liquids (NGL) sale prices and volumes also negatively impacted the company's results during the quarter, partially offset by higher contributions from its Jackalope, Rocky Mountain Midstream, and Overland Pass Pipeline joint ventures.

Pipelines at an energy processing complex

Image source: Getty Images.

A look at the outlook

CEO Alan Armstrong had this to say in the earnings release:

The quality and predictability of our cash flows, even in times of commodity swings, combined with the accelerating demand for natural gas, point to continued growth for us in 2019 as we enjoyed strong execution on all of our major projects in 2018 and the beginning of 2019.

That led the company to reaffirm its forecast for 2019, which calls for adjusted EBITDA in the range of $4.85 billion to $5.15 billion and distributable cash flow between $2.9 billion to $3.3 billion, both representing 8% growth at the midpoint. The only thing the company did change was its capital spending plan, which it increased from $2.6 billion to a range of $2.7 billion to $2.9 billion mainly due to timing shifts from 2018 to 2019.

Armstrong also provided a glimpse at what's to come further in the future:

... with the expected 15% compounded annual growth rate for gathered volumes in our Northeast G&P segment expected through 2021, Transco's continued string of expansion projects, our recently announced Bluestem Pipeline project, our joint venture in the Permian with Brazos Midstream, the growing Rocky Mountain Midstream in the DJ Basin and a growing list of deepwater discoveries, it's easy to see why Williams is poised for additional growth in 2019 and beyond.

One of the projects Armstrong highlighted was the Bluestem Pipeline, which is part of a newly signed agreement with Targa Resources (NYSE: TRGP) to improve the flow of NGLs from the Rockies to the Gulf Coast. Williams will build the 188-mile Bluestem pipeline, which will transport NGLs from its Overland Pass Pipeline to Targa's Grand Prix NGL pipeline, which it will extend 110 miles. Overall, Williams expects to invest $350 million to $400 million into Bluestem and other related projects, which should be in service by the first quarter of 2021. In securing that project, Williams has further improved the visibility of its longer-term growth prospects.

Full speed ahead

Williams Companies' growth rate has started reaccelerating thanks to the start-up of several key expansion projects. With more coming down the pipeline, the company appears well positioned to continue increasing earnings and cash flow not only in 2019, but for the next several years. That should enable the company to keep growing its dividend, which makes Williams an ideal stock for income-seeking investors.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.