For the first time in 15 quarters, Williams Companies (NYSE:WMB) and its MLP Williams Partners (NYSE:WPZ), failed to grow earnings. However, that wasn't entirely unexpected since the pipeline companies faced some headwinds in the third quarter. That said, this step back is just a temporary blip for a franchise that has several growth projects underway that should enable both companies to deliver healthy income growth for investors in the coming years.

A look at the numbers

Overall, Williams Partners generated $1.101 billion of adjusted EBITDA, which was $88 million less than it earned in the year-ago quarter. That decline took down distributable cash flow as well, with it falling from $795 million in the year-ago quarter to $669 million. That said, Williams Partners still generated enough money to cover its distribution to investors by 1.17 times. The primary recipient of those distributions was Williams Companies since it owns a 74% stake in the MLP. After expenses, it produced $355 million in cash flow available for dividends, which was down from $441 million in the year-ago period. However, Williams still covered its payout to investors by 1.43 times.

Several factors drove the decline in Williams Partners' earnings and cash flow:

A chart comparing Williams Partners' earnings in the third quarter of 2017 and 2016.

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

As that chart shows, profitability in three of Williams Partners four segments declined against the year-ago period. However, the main culprit was the NGL & petchem services segment, where earnings plunged $101 million. Though that was because Williams sold off all the assets within this division over the past year to shore up its balance sheet, so it would have the funds needed to finance its growth projects.

Meanwhile, earnings in the Atlantic-Gulf segment were down slightly, due mostly to a $6 million impact from hurricanes during the quarter. Hurricane Harvey also impacted the company's west segment, knocking about $1 million off the bottom line. In addition to that, asset sales contributed to the earnings decline in the west. That's after Williams traded its stake in a gathering system in the Delaware Basin to Western Gas Partners (NYSE:WES) in exchange for cash and Western Gas' interest in two natural gas gathering systems in the Marcellus Shale. Further, it sold its minority stake in another system to two other companies for cash. The lone bright spot in the quarter was the company's northeast G&P segment where earnings benefited from the assets acquired from Western Gas Partners.

Colorful pipelines and values at a natural gas field.

Image source: Getty Images.

A look at the outlook

Those various asset sales have enabled Williams Partners to reduce net debt by $3 billion since the start of the year. That has significantly strengthened its credit profile, giving it the financial flexibility to fund its growth projects. The bulk of those investments will be to expand its Transco pipeline. The company noted that it has already completed four projects this year and expects a fifth to be in service by year-end. These projects have boosted the system's revenue by 7% versus last year. Williams also continued making progress on its largest expansion of Transco, which is its Atlantic Sunrise project. The company recently started construction and anticipates that it will take 10 months to finish that project if the weather cooperates.

Meanwhile, the company recently signed an agreement with Southwestern Energy (NYSE:SWN) to support the gas producer's growth in the Marcellus Shale region. As a result of the deal, Williams will expand its Oak Grove natural gas processing facility so it can separate Southwestern Energy's production into natural gas and natural gas liquids (NGLs). Further, it will build new gathering pipelines, which will collect the raw output from the wells and transport it to Oak Grove. Southwestern has agreed to long-term, fee-based contracts to support these expansions, which should lock in a steady stream of cash flow for Williams Partners.

Ready to start a new streak

While Williams Partners' earnings took a step back in the third-quarter, that's just a temporary setback driven by the company's decision to sell non-core assets with the intention of reinvesting the proceeds into higher returning growth projects. Overall, Williams Partners continues to anticipate that those initiatives will fuel 5% to 7% annual distribution growth over the next several years, which will enable Williams Companies to increase its payout by 10% to 15% per year. Williams' ability to execute that growth plan could fuel a compelling total return for income-focused investors over the next several years.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.