Williams Swings 2Q2002 Loss to 2Q2003 Profit
Due to a strong performance from its energy marketing and trading segment, in addition to asset sales, Williams announced 2Q2003 unaudited net income of $269.7 million, or 46 cents per share on a diluted basis, compared with a net loss of $349.1 million, or a loss of 68 cents per share, for the similar period of 2002.
The company reported net income from continuing operations of $118 million, or 18 cents per share on a diluted basis, compared to a loss of $331.8 million, or a loss of 65 cents per share, on a restated basis for discontinued operations related to assets sold or held for sale, during the same period of 2002.
Following the earnings announcement, analysts chimed in with opinions. "Based on the 2Q'03 results and our analysis of the WMB business units and financials, we are maintaining our estimates of break-even for '03 and profit of $0.40 in '04," said Credit Suisse/First Boston in an Earnings Flash. "From a valuation perspective, our Neutral rating is based on a thesis that WMB has made a significant recovery. De-leveraging will continue to provide benefits and earnings growth. Our initial analysis for '05 shows eps in a range of $0.70 - $0.80 per share."
Williams said the improved performance from continuing operations reflects: $567 million of higher mark-to-market results, primarily from certain derivative contracts that were affected by increased natural gas prices; a $175 million net gain on the sale of an energy-trading contract; and approximately $81 million of segment profit associated with a prior-period adjustment. The company added that another contributor to its higher income from continuing operations was a $92 million net gain on the sale of certain exploration and production properties.
"We're headed in the right direction," said Steve Malcolm, CEO. "Improved financial results are another sign of our progress. Our core natural gas businesses continue to perform well. And our marketing and trading unit made a positive contribution, too. We're making significant progress in turning this company around.
"Now that our finances have improved considerably, we have added flexibility with regard to timing of asset sales. We've been very successful in executing on our strategy of selling assets -- and we're very nearly done. We expect to complete what we've already identified for sale, then stop."
In the first six months of 2003, Williams reported income from continuing operations of $79.2 million, or 9 cents per share on a diluted basis, vs. a loss of $284.6 million, or a loss of 69 cents per share, for the same period in 2002 on a restated basis.
Williams' integrated natural gas businesses, which the company considers core to its strategy, reported combined segment profit of $345 million in 2Q2003 vs. $285.2 million in the same period last year on a restated basis. The core businesses include Williams' Gas Pipeline, Exploration & Production and Midstream Gas & Liquids segments.
"Our second quarter results demonstrate that our core businesses have solid, sustainable earnings capacity," Malcolm said. "We are managing these businesses and investing in them in a disciplined way to enhance their already-strong competitive positions and create future earnings growth."
For the first half of 2003, the core businesses reported combined segment profit of $727.3 million vs. $580.7 million for the same period last year on a restated basis.
Williams' Energy Marketing & Trading segment, which manages more than 7,500 MW of power through long-term contracts, reported segment profit of $348 million vs. a segment loss of $497.5 million for the same period last year. The company added that it is adopting Power as the new name for the Energy Marketing & Trading segment. Williams said it is continuing to pursue a strategy designed to result in substantially exiting the power business, through sales of component parts of the portfolio or as a whole.
"We've made great progress in strengthening our financial house," Malcolm said. "We've continued to deliver solid operating performance, we've executed on our strategy to sell assets and we've regained access to capital markets. Our financial position clearly creates opportunities to retire additional debt, consistent with our goal of achieving investment-grade credit ratios in 2005. We also have the flexibility to continue making very disciplined investments in our core businesses, with a near-term focus on those opportunities that have the most attractive cash-return characteristics."
Williams also provided updated guidance on its expected financial performance, including unusual items of income or loss, for 2003. The company said it expects to log a diluted net loss of $1.40 to 55 cents per share. In addition, Williams expects segment profit of $1.3 billion to $1.8 billion and results from continuing operations of a $50 million loss to income of $350 million.
For full-year 2003 segment-profit guidance, which includes unusual items of income or loss, Williams looks for $500-550 million from Gas Pipeline, $400-450 million for Exploration & Production, $420-480 million for Midstream Gas & Liquids, break-even to $300 million for Energy Marketing & Trading and a loss of $50 million to break-even for other operations.
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