While Williams Companies' (WMB 0.08%) growth engine sputtered through the first half of last year, it shifted back into high gear during the third quarter as the company's strategic initiatives started paying dividends. That growth should have continued during the fourth quarter because the gas pipeline operator completed several more expansion-related initiatives. This anticipated acceleration of Williams' growth engine is one of three things investors should keep an eye on when the company reports fourth-quarter results later this week.
1. See if it delivers high-end results
Williams Companies currently expects to generate between $4.45 billion and $4.65 billion in adjusted EBITDA during 2018, while distributable cash flow should be in the range of $2.6 billion to $2.9 billion. The natural gas pipeline giant had already produced $3.4 billion of adjusted EBITDA and $2.1 billion of distributable cash flow through the third quarter, which had the company on track to achieve the high end of its guidance range.
Check out the latest Williams Companies earnings call transcript.
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Investors should see if that's the case. Fueling the company's optimistic view is that its major Atlantic Sunrise pipeline entered service in early October, which should have provided a noticeable lift to its results. On top of that, the company should also benefit from the recent close of its investment in Discovery DJ Services. Those factors should more than offset the lost income from the sale of its Four Corners asset, which closed during the quarter.
2. Look for any changes to its 2019 outlook
Williams Companies estimates that those growth-focused initiatives should enable the company to continue expanding earnings and cash flow at a healthy pace in 2019. The company currently believes that adjusted EBITDA should increase to a range of $4.85 billion to $5.15 billion, while distributable cash flow should improve to $2.9 billion-$3.3 billion. Further, the company expects to increase its dividend by another 10% to 15% this year.
However, with volatility returning to the oil market in recent months, several oil and gas drillers have reduced their spending plans for 2019. Because of that, volume growth in the company's gathering and processing systems might not be as high as it anticipated. Given that uncertainty, investors should see if the company makes any changes to its guidance for 2019.
3. Check if the company sanctioned any new expansion projects
Williams Companies invested $3.9 billion in expansion projects last year, which sets it up to grow earnings and cash flow at a high rate in 2019. However, with the roll-off of spending on the needle-moving Atlantic Sunrise project, the company only expects to invest $2.6 billion on capital projects this year. As a result, earnings growth is on track to slow from the 10% annual rate the company anticipates in 2018 and 2019 to around a 5% to 7% yearly rate beyond this year.
One way the company could quicken its pace is if it secured new expansion projects. Williams has been working on several initiatives to boost growth, including signing a joint venture with a midstream company in the Delaware Basin late last year to enhance its position in that fast-growing region. In addition, the company is pursuing more than 20 expansion opportunities on its key Transco pipeline as well as several other projects across both its gathering and processing business, and in its deepwater Gulf of Mexico position. Given that securing new projects is important in driving future growth, investors should check if the company locked up any more expansions in recent months.
Anticipating a solid end to a strong year
Williams Companies expected to end last year on a high note, as recently completed expansion initiatives should have boosted earnings toward the top end of its guidance range. The hope is that nothing unexpected derailed the company's growth engine during the quarter. That would help keep it on track for continued earnings and dividend growth in 2019 and beyond, which is what makes this natural gas pipeline stock such an intriguing one for income-seeking investors to consider.
