Williams Companies: Earnings Preview

| About: Williams Companies (WMB)

Williams Companies (NYSE:WMB) is expected to report its first quarter 2012 results on Wednesday April 25, after the close of trading.

The Zacks Consensus Estimate for the quarter is a profit of 36 cents per share (with an upside potential of 2.78%) on revenues of $1,847 million.

Previous Quarter Recap

Williams reported fourth quarter 2011 earnings per share, excluding special items, of 36 cents, below the Zacks Consensus Estimate of 41 cents. Comparing year over year, earnings improved 20.0% from 30 cents, backed by strong performances from expansion projects along with improved margins.

The company generated revenues of $2,103 million, failing to meet our expectation of $2,807 million. However, sales climbed 20.8% from prior-year level of $1,741 million.

As of December 31, 2011, Williams had cash and cash equivalents of about $889 million and debt of $8,722 million, representing a debt-to-capitalization ratio of 82.9%.

Agreement of Analysts

The analysts exhibit a pessimistic sentiment for Williams' to-be reported quarter based on the high debt level that exposes it to strong financial risks along with the low natural gas price environment. Moreover, the analysts believe that transfer of the upstream business into a separate, independent and publicly traded company WPX Energy Inc. (NYSE:WPX) has left Williams with a less diversified business model.

In the last 30 days, out of the 10 analysts covering the stock, 5 have reduced their estimates for the first quarter, while only one analyst raised the estimate. In the last 7 days, none of the analysts revised any estimate.

Magnitude of Estimate Revisions

With effect from the earnings revisions by the analysts in the last 30 days, the Zacks Consensus Estimate for the first quarter of 2012 dropped by a penny to 36 cents. For the past seven days, the estimate for the quarter remained static.

Surprise History

Williams exhibited a mixed earnings surprise trend over the last four quarters. The company recorded a minimum surprise of negative 12.20% in fourth quarter of 2011 while a maximum of 2.86% in the first quarter 2011. On average, the earnings surprise was a negative 2.29%.

Our Recommendation

Tulsa, Oklahoma-based Williams is a premier energy infrastructure provider in North America. We maintain a long-term Neutral recommendation on the stock that is supported by a Zacks #3 Rank (short-term Hold rating).

We believe that Williams, through its pipeline/processing infrastructure and the ownership of Williams Partners L.P. (NYSE:WPZ), is likely to emerge as one of the top North American pure play energy infrastructure companies with highly visible cash flow and dividend growth in the years to follow.

We also expect that the recent strategic restructuring to enhance Williams' value by improving the competitiveness of the company's midstream and gas pipeline assets.

However, at current levels, we believe that the risk/reward ratios of the company's shares are well balanced and the stock's upside potential will remain limited until Williams has fully reaped the benefits of the recent spin-off.