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Williams Companies Missed the Q2 2018 Earnings Estimate

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Second-quarter EBITDA estimate

Williams Companies (WMB) and its MLP subsidiary, Williams Partners (WPZ), reported their second-quarter earnings on August 1 after the market closed. Williams Partners reported an adjusted EBITDA of $1.097 billion in the second quarter—compared to $1,104 billion in the second quarter of 2017, which represents a marginal decline of 0.6% year-over-year. The partnership’s EBITDA fell short of analysts’ estimates of $1.115 billion by ~$18 million (or 1.6%).

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The partnership’s lower EBITDA in the second quarter was driven by the lower EBITDA contribution from the Discovery system, the sale of the olefins business, and higher operating and maintenance expenses. The lower EBITDA was partially offset by higher commodity margins and higher Transco revenues from expansion projects placed into service.

Increased capital guidance

Williams Companies increased its capital guidance for 2018 and 2019 due to the recent announcement to acquire Discovery DJ services and the addition of expansion opportunities in the West (Niobrara) regions. Williams Companies announced the acquisition of DJ Services system ahead of its second-quarter earnings announcement. The company plans to acquire the Discovery DJ services, which includes gathering and processing assets in DJ Basin, in a joint venture with KKR for $1.173 billion. Williams Companies would initially contribute capital for 40% interest.

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The updated guidance for 2018 and 2019 is $3.9 billion and $2.6 billion, respectively—25.8% and 8.3% higher compared to the previous guidance. The company expects to fund the transaction with the sale of its interest in Four Corners Area business to Harvest Midstream Company for $1.125 billion in cash. According to Alan Armstrong, Williams Companies’ CEO, “Selling assets in a maturing basin at attractive multiples, and redeploying that capital to higher growth basins enhances our position to capitalize on future growth opportunities and follows our strategy to connect the best supplies to the best markets.”

However, the company doesn’t expect the two transactions to impact its 2018 earnings guidance. Earlier, the partnership announced an adjusted EBITDA guidance of $4.45 billion–$4.65 billion for 2018. At the midpoint, the guidance represents 1.7% annual adjusted EBITDA growth compared to 2017.

How the markets could react

The markets might be disappointed by Williams Companies’ earnings miss in the second quarter. Williams Companies was 1.1% ahead of its earnings announcement on August 1. Overall, Williams Companies has lost 1.4% since the beginning of 2018. At the same time, the Alerian MLP ETF (AMLP) has gained 1.1%.

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