Despite battling through several headwinds over the past year, Williams Companies (NYSE:WMB) has managed to deliver positive results. That pattern was echoed once again in the company's second-quarter earnings, reported this week. Williams showed a 4.5% increase in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), which hit $1.11 billion thanks to a solid quarter from its MLP Williams Partners (NYSE: WPZ). That marked the company's 15th consecutive quarter of adjusted EBITDA growth, which is impressive considering the intense commodity-price volatility that has plagued the industry over the past few years. As these results show, the company has further removed itself from these price fluctuations while at the same time increasing the visibility of future growth, which should pay big dividends down the road. 

The underlying results were rock solid

Williams Companies gets virtually all of its income from its majority ownership interest in Williams Partners, which currently operates four segments. As the following chart shows, two of the four drove the company's solid performance during the second quarter:

A chart showing Williams Partners segment results in the second quarter of 2017 versus the prior-year period. The Atlantic-Gulf and Northeast gathering and processing segments posted year-over-year increases.

Data source: Williams Partners. Chart by author. In millions of dollars.

The star performer was Williams' Atlantic-Gulf segment, which houses its crown jewel Transco pipeline among other assets. Expansion projects along that pipeline system, as well as rising volumes on its Gulfstar One floating production system in the Gulf of Mexico, drove earnings higher during the quarter. Meanwhile, profits in the Northeast gathering and processing (G&P) segment also increased during the quarter due in part to the company's acquisition of an additional interest in two gathering systems in the Marcellus shale earlier this year from Western Gas Partners.

On the downside, earnings in the west fell as a result of lower volumes in the Barnett shale as well as the sale of two assets in the Delaware Basin, one of which went to Western Gas Partners in the deal for the Marcellus assets. Meanwhile, earnings in the natural gas liquids and petrochemical services segment fell due to lower margins and the sale of Williams' Canadian assets last fall. It's also worth noting that this division will cease to exist going forward since the company closed the sale of its Geismar facility shortly after the quarter ended.

Stability is getting stronger

The sale of the Geismar facility is a significant milestone for the company because it will further reduce its direct exposure to commodity prices. In fact, going forward, 97% of Williams Partners' earnings will come from stable fees; that figure was in the low 90s when the company started on its transformational journey last year. The increase in the percentage of income coming from fees heightens the predictability of the company's earnings stream, which enhances the long-term sustainability of the MLP's distribution, doing the same for Williams' dividend.

The other thing this transaction did was bring in a boatload of cash since Williams Partners received $2.1 billion for its stake in Geismar. The company used $850 million of that money to pay off a term loan, and plans to reinvest the rest into high-return fee-based growth projects that it has in development, which should increase its stable sources of cash flow in the future.

A Pipeline under construction.

Image source: Getty Images.

The visibility of growth is enhancing

Speaking of growth projects, Williams Partners has placed three expansions of its Transco system into service so far this year, including phase 1 of the Hillabee Expansion Project and the Dalton Expansion Project, which both entered service in the past month. The company has three more fully contracted projects lined up for 2017 completions on Transco. These projects should enable Williams' Atlantic-Gulf segment to continue posting higher results.

In addition, the company recently received notice that it can proceed with its Atlantic Sunrise Project, which is the largest in its backlog. Construction is now underway on this $3 billion expansion of Transco that should enter full service by the middle of next year. In addition, the company has an increasing line of sight on several additional expansion projects not only on Transco but also in its west and Northeast G&P segments. The improving visibility of these growth projects enhances the likelihood that Williams Partners can deliver on its promised 5% to 7% annual distribution growth, which would in turn fuel 10% to 15% yearly dividend increases at Williams.

The future continues to come into focus

The second-quarter results of Williams Companies and its MLP show that their strategy is working. Earnings continue heading higher, cash flow predictability is on the rise, and growth projects are becoming increasingly more certain. Those factors should enable both companies to deliver healthy income growth for investors over the coming years.

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