3 Things Williams Companies Inc. Want You to Know About the Progress of Its Transformation

Williams Companies (NYSE: WMB) and its master limited partnership, Williams Partners (NYSE: WPZ), recently reported solid second-quarter results. Overall, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 4.5% to $1.11 billion, which marked the 15th straight quarterly increase.

That said, despite that history of success, the company is on a quest to become even better. It took several important steps in that direction last quarter, which CEO Alan Armstrong highlighted on the accompanying conference call. Here are three things the company wanted investors to know about its progress during the quarter.

We've driven risk out of our business

One of Williams' priorities over the past year has been to reduce the potential for earnings volatility by selling assets with direct exposure to commodity prices. The company took another significant step in that direction, with Armstrong pointing out:

As Armstrong notes, only 3% of Williams Partners' gross margins going forward have any direct exposure to commodity price volatility, which is a significant improvement from the roughly 10% exposure it had before undergoing this transformation. As a result, the company's earnings streams have become much more predictable, which should reduce its overall risk profile.

Our balance sheet is getting stronger

In addition to reducing earnings risk, the Geismar sale also brought in $2.1 billion in cash. Armstrong stated that the company used a portion of the proceeds "to pay off our $850 million term loan. And, of course, further strengthening our balance sheet, which we've made tremendous progress on here in the last 12 months." The company expects its leverage ratio to be below 4.5 times debt to EBITDA this year, which is an improvement from last year when its elevated leverage ratio caused credit rating agencies to put it on watch for a potential downgrade. Meanwhile, the sale provided the company with cash to help finance its expansion projects.

We're making progress on our growth projects

While Williams has been jettisoning riskier assets and improving its balance sheet, it has also been expanding its low-risk network of fee-bearing natural gas infrastructure assets. The company began the year expecting to bring five projects on line by year-end. However, on the call, Armstrong said:

Given the company's pace, it could potentially finish six projects this year, which enhances its ability to continue growing earnings in future quarters. Overall, these projects represent a $1.4 billion investment, which should generate about $250 million in annual EBITDA. In addition to that, it has another $4 billion in projects under development on its Transco system alone that should enter service by 2020 and add another $650 million to the bottom line on an annual basis. Those projects support the forecast that Williams Partners can increase its distribution to investors by a 5% to 7% annual clip over the near term, which would fuel 10% to 15% annual dividend growth at Williams.

The uncertainty is quickly fading

Williams Companies and Williams Partners made tangible progress over the past few months on their goal to transform into a low-risk, gas-focused energy infrastructure company. Because of that, it's becoming increasingly likely that the companies will be able to deliver on their promised earnings and dividend growth. That's just what income-seeking investors want to see since it means that they should be able to earn a low-risk, high-yield 4% at Williams and 6.2% at Williams Partners that has an excellent chance of growing at a healthy clip for the next several years.

10 stocks we like better than Williams CompaniesWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Williams Companies wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of August 1, 2017

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