Energy, Energy Service, Natural Gas & Oil Sectors: Williams Cos 2Q Earnings

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More on Williams Cos from 7/31 WSJ:

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Williams 2nd-Quarter Net Declined 3.5% On Nearly Flat Energy-Trading Profit

By CHIP CUMMINS

Failing to get a boost from the energy-trading business that has super-charged earnings in recent quarters, Williams Cos. (WMB) reported a 3.5% decrease in net income for the second quarter.

Williams, a Tulsa, Okla., pipeline and energy-services concern, said net income was $339.5 million, or 69 cents a diluted share, down from $351.8 million, or 78 cents a share, in the year-ago period. Revenue was $2.82 billion, up 20% from $2.35 billion.

Excluding nonrecurring items, including a gain on the sale of a chain of convenience stores in the latest period, the company said income from continuing operations was $290.8 million, or 59 cents a share, down 5.8% from $308.7 million, or 69 cents a share, for the same period last year.

The performance beat analysts' expectations by five cents a share, according to a survey by Thomson Financial/First Call. As of 4 p.m. in New York Stock Exchange composite trading Monday, Williams shares rose six cents, to $33.15 each. Investors had been selling off shares of Williams and its energy-trading peers recently amid fears that today's lower energy prices may begin to erode the fantastic trading profit of recent quarters.

Trading-and-marketing gains fueled Williams's explosive earnings growth for much of last year and earlier this year. In the first quarter of 2001, for instance, the company's net income doubled to $199.2 million, as segment profit from its trading division rose more than 500% to $484.5 million.

But in the second quarter, Williams's trading floor contributed profit of $273.2 million, essentially flat with $272.6 million reported last year and down sharply from the first quarter. "The higher the numbers get, the harder it is to maintain a growth rate," said Ronald Barone, an analyst at UBS Warburg. Williams "knocked the ball out of the park in the first quarter. I'd like to see them do that again."

Keith E. Bailey, Williams's chairman and chief executive, said investor worries that falling energy prices would hurt the company's results were "unjustified." Speaking to analysts on a conference call Monday, Mr. Bailey said the company's other core businesses provide diversification from the ups and downs of the trading floor. "Williams is not a one-trick pony," he said. Also, Mr. Bailey said, Williams insulates itself considerably from short-term volatility by focusing on longer-dated energy contracts.

Williams said it made about $20 million more in trading natural gas and electricity this quarter than in the same period last year, but trading profit declined for natural-gas liquids, crude oil and refined products.

Williams said improved refining volumes and margins at its petroleum-services business and higher natural gas prices at its exploration-and-production division bolstered results. The sale of its Mapco Express convenience stores in May resulted in a pretax gain of $72.1 million, adding nine cents a share to earnings. Earnings from Williams's pipeline business, however, fell to $207.1 million in the quarter from $215.2 million last year.

Williams also reported roughly $302 million in accounts receivable from California, where spiraling electricity costs last year and earlier this year resulted in nonpayments to generators and marketers. Mr. Bailey said the company has taken adequate reserves, which Williams has declined to detail, to cover any nonpayments in the state.

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.....Jen

-- posted by JenL_2