Williams Cuts Dividend to Prop Up Pipeline Subsidiary

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Williams Companies (NYSE: WMB) reported second-quarter 2016 results after markets closed Monday afternoon. The pipeline operator reported a diluted net loss of $0.54 per share on adjusted EBITDA of $1.07 billion. In the same period a year ago the company reported earnings per share (EPS) of $0.15 and adjusted EBITDA of $1.02 billion.

Williams Partners LP (NYSE: WPZ) also reported second-quarter 2016 results after markets closed Monday afternoon. For the quarter, the company posted quarterly a diluted loss per common unit of $0.49 and adjusted EBITDA of $1.07 billion. In the same period a year ago, the company reported  EPS of $0.14 on adjusted EBITDA of $1.01 billion.

Williams’ net loss in the quarter was due primarily to a $747 million non-cash pre-tax impairment charge associated with Canadian assets held for sale. Williams Partners took a $341 million charge for the same reason.

Between now and the end of 2017 Williams plans to reinvest about $1.7 billion in Williams Partners through a Distribution Reinvestment Program (DRIP) funded by a reduced quarterly cash dividend. The quarterly Williams dividend will be cut from $0.64 to $0.20 (73%) beginning in the third quarter. The retained cash “can be reinvested into Williams Partners to enhance its ability to maintain its distribution and increase its distribution coverage, while providing the partnership with the flexibility to reduce debt and maintain its investment grade ratings.”

Williams and Williams Partners CEO Alan Armstrong said:

We own the premier natural gas focused asset base, and our strong performance in the second quarter once again demonstrates that our strategy positions Williams like no other company to benefit from growing natural gas demand. In fact, we currently have projects in negotiation or execution to add 7.6 Bcf per day of capacity to markets served by Transco through 2020, which amounts to 65 percent of Wood Mackenzie’s 5-year projected demand growth for natural gas along Transco’s corridor. In 2018, we expect to have twice as much fully-contracted capacity on Transco as we did in 2010.

Williams Partners offered full-year 2016 net income guidance of $900 million and adjusted EBITDA of $4.3 billion. Consensus revenue estimates call for third quarter sales of $2.36 billion and full-year sales of $6.99 billion.

Williams did not provide guidance, but consensus estimates call for third quarter EPS of $0.23 and revenues of $1.78 billion. For the full-year Williams is expected to post EPS of $0.82 and revenues of $7.7 billion.

Williams shares closed at $22.53 on Monday, down about 6% for the day and traded up about 0.6% at $22.60 in the after-hours session. The stock’s 52-week range is $10.22 to $55.42. Thomson Reuters had a consensus 12-month price target of $29.36 before this afternoon’s earnings report.

Williams Partners traded up about 0.63% in after-hours trading Monday at $34.74 after closing at $34.68. The 52-week range on the common units is $12.69 to $45.96 and the consensus 12-month price target is $55.00.

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