2023-05-11 18:25:11 ET
Summary
- WMB posted solid results, showing its strength as an integrated midstream company.
- Its marketing unit had a particularly strong quarter, taking advantage of regional natural gas price differences and more than offsetting weakness in its West segment.
- The stock is attractively priced and remains a "Buy."
Ahead of earnings, I took a bullish view on The Williams Companies ( WMB ). Let's take a closer look at the quarter in which the company put up solid results.
Q1 Results
For Q1, WMB reported adjusted EBITDA of $1.8 billion, an increase of 19%. Adjusted net income was $684 million, or, 56 cents per share, an increase of 36%. Analysts were looking for adjusted EPS of 49 cents.
Cash flow from operations rose 40% to $1.51 billion. Available funds from operations were $1.45 billion, up 21%. Its dividend coverage was 2.65x. It ended the quarter with leverage of 3.6x.
WMB recorded record-gathering volumes of 17.85 Bcf/d, up 18% year over year. It has had a record contracted transmission capacity of 32.5 Bcf/d, up 33% compared to a year ago.
Turning towards its individual segments, WMB's Transmission & Gulf of Mexico segment saw its adjusted EBITDA rise 4% to $728 million. The results were helped by the acquisition of the MountainWest Pipeline in mid-February, as well as a full quarter for its NorTex purchase.
Its Northeast G&P business saw adjusted EBITDA climb 12% to $470 million. Volumes rose 7%, predominantly in liquids-rich areas where WMB has higher margins.
WMB's West segment saw its adjusted EBITDA jump 10% to $286 million. The results were helped by a full quarter of its Trace acquisition as well as hedges. Severe weather in Wyoming hurt results, and the segment results ultimately came in about -3% lower than WMB had anticipated.
WMB saw its Gas & NGL Marketing Service segment EBITDA generate adjusted EBITDA of $231 million. That compares to just $65 million a year ago. The results were powered by strong transportation margins across all its regions as well as robust storage margins.
Its Other segment, which includes its upstream joint venture operations, saw adjusted EBITDA rise 13% to $80 million. This was powered by solid results out of the Haynesville.
Overall, it was a solid quarter from WMB. The strength in its Northeast G&P segment was notable in the face of a more difficult natural gas environment. Its Gas & NGL Marketing results were also a big highlight. On the negative side, it did see some weakness in NGL processing margins, as well as weather disruptions in Wyoming. High nat gas prices out west turned processing margins negative in the region. However, WMB's marking unit Sequent was able to take advantage of the regional spread differences and more than makeup for the issues out west. This is one of the big advantages of a being a large, integrated company like WMB.
Financially, the company also remains in great shape, with a strong balance sheet and a high distribution coverage ratio. WMB also bought back $74 million in shares in Q1.
Outlook
Looking forward, the company maintained its adjusted EBITDA guidance range of $6.4-6.8 billion. The analyst consensus is right in the middle of that range at $6.6 billion.
WMB plans to spend between $1.6-1.9 billion on growth capex this year. This is largely due to its Transco Regional Access Project. That's up from earlier guidance of growth CapEx of between $1.4-1.7 billion.
Discussing its ongoing growth projects on its Q1 call , CEO Alan Armstrong said:
"Our team also accelerated the timing on key deliverables for several other fixed fee-based projects that are all supported by long-term contracts. This includes our Louisiana Energy Gateway project, Transco's Southeast Energy Connector and Transco's Regional Energy Access project. In fact, project execution is now in full swing on both Regional Energy Access and Louisiana Energy Gateway. And as a result of the quick action by the FERC and our construction teams, we now expect to bring approximately half of this regional energy access capacity into service ahead of schedule and actually in the fourth quarter of this year. So that will be just in time to meet growing demand in the Northeast region ahead of the winter heating season. Of course, this will also provide new market for producers on our Northeast Pennsylvania gathering systems, which, of course, is incremental to the returns on a project like that.
"We also executed several key agreements with Chevron to facilitate natural gas production growth in the Haynesville and the deepwater Gulf of Mexico. As part of those agreements, we gained a large dedication to our recently acquired Trace gathering system and a long-term capacity commitment on our Louisiana Energy Gateway project. This is a great example of Williams and Chevron working together to connect prolific domestic resources to expanding LNG export markets. We also placed several large-scale gathering expansions into service this quarter. The Marcellus South gathering expansion in Southwest Appalachia increased our capacity by 100 million cubic feet per day from rich gas supplies in this area, and significant progress was also made on our build-out of the new and fully contracted capacity on our Susquehanna County gathering system in Northeast PA."
WMB is looking to end the year with a leverage of around 3.65x. It already increased its dividend by 5.3% early this year and plans to pay out a full-year dividend of $1.79.
While it would have been nice to see WMB raise guidance, in the current environment I think maintaining guidance is a positive. The company raised its growth CapEx budget, but this is from the expectation of projects coming online quicker, not due to cost overruns. These are high-return projects, so I think that is a good thing, as well.
Conclusion
WMB remains a great combination of being both defensive in nature, as well as providing growth. Its defensive nature can be seen in its strong balance sheet and high dividend coverage ratio, as well as its ability to offset weaknesses in its portfolio with strength elsewhere. Turning weak West processing margins into strong Marketing results is a great example of this.
At the same time, WMB offers both solid EBITDA growth as well as dividend growth. It has some big projects that should start to come online towards the end of this year that will power both 2024 and 2025 results. Meanwhile, it has some clear sight into strong dividend growth given its high coverage ratio and cash flow growth.
Trading at about 8.5x the 2024 EBITDA consensus of $6.7 billion, which I think will ultimately prove to be low, the stock remains cheap. Its FCF yield of over 11% is also attractive. I continue to rate the stock a "Buy" with an upside to $42. WMB is performing well, and everything looks like it remains on track.
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Williams Companies Posts Solid Q1 Results; Projects To Come Online Quicker