by Clement Thibault
Williams Companies Inc (NYSE:WMB) is an energy infrastructure and transportation company with an emphasis on natural gas. It is composed of multiple companies, including the MLP Williams Partners (NYSE:WPZ), which operate separately and together on pipelines, natural gas gathering, and other midstream activities. It reports Q2 earnings on Monday, August 1, after the market closes.
1. Revenue and Earnings Forecast
The consensus EPS estimate for Williams is $0.23 on $1.92B in sales. It's clear this company has hit a rough patch, which isn't surprising given the sector in which it operates. Energy commodity prices have been severely depressed for quite some time and market volatility high. The company has missed estimates in the past two quarters by a lot—it reported earnings per share of $0.01 and $0.03 in Q4 '15 and Q1 '16 respectively, while estimates were at $0.22 in both cases.
2. Disastrous Past Quarter
Williams was to merge with rival pipeline operator Energy Transfer Equity (NYSE:ETE), in a deal that was valued at $33B when it was signed last September. But on June 29th, the deal fell through when ETE pulled out after it said it discovered a problem that would likely trigger unexpected taxes. Wiliams is currently fighting ETE's decision, but the deal wasn't unanimously liked on Williams' end either.
Its board approved the merger but the company's CEO, Alan Armstrong, opposed the deal. Consequently, six of Williams' 13 board members resigned. The deal's termination doesn't end Williams' problems either. According to the company, the collapse in negotiations will likely reflect a loss of between $4B and $10B in shareholder value. Add to that a $1.48B termination fee the company now owes ETE, and you've got a significant hit to the company's already shaky bottom line.
3. Future Outlook
The company's large, quarterly dividend of $0.64—which has been paid regularly since 1974—will likely be history quite soon. The company is already highly leveraged—it has a debt-to-EBITDA ratio that's hovering above 12x earnings, compared to between 4x to 8x for competitors—so adding more debt to protect the dividend isn't an option at this time. The company's Canadian assets are for sale, in an attempt to reduce their leverage.
It's difficult to predict what's next, with the company in relative turmoil as of this writing. Investors are looking for today's earnings release to provide a modicum of reassurance, but recent events, and this past year's earnings history, suggest shareholder comfort may be hard to come by.