Will Silver Wheaton Corp Reach its Quarterly Goals?

Silver Wheaton (NYSE: SLW), a leading silver streaming company, will release its first quarter earnings report on May 8th. In anticipation for its release, let’s take a closer look at this streaming company including its quarterly goals, the market expectations and its performance compared to other leading precious metals companies.

Expectations

According to the company’s 2014 outlook, its attributed production is set to reach 36 million of silver equivalent ounces via the minesSilver Wheaton has streaming agreements with. Based on this guidance, the company’s quarterly amount of silver and gold sold is listed in the table below.

slw q1 revSource of data from Silver Wheaton’s website.

As you can see, during the first quarter of 2014, the company increased its attributed gold production by nearly 130% mainly due to gold stream contracts it entered back at the beginning of 2013 with Vale’s Salobo and Sudbury mines. Moreover, Silver Wheaton’s attributed silver production rose by roughly 12% compared to the first quarter in 2013. Conversely, the plunge in precious metals prices, as indicated above, dragged down the company’s total revenue by nearly 9%, year over year.

Analysts also expect Silver Wheaton’s revenue reached only $187 million during the first quarter. Further, analysts estimate the company’s quarterly earnings per share reached $0.23. If Silver Wheaton doesn’t reach these numbers, it could pressure down its stock. One factor that could result in lower revenue is a rise in the company’s amount of silver produced and not yet delivered. Silver Wheaton had more than 6.4 million silver equivalent ounces that weren’t delivered to the company as of December 31st, 2013. If this amount rises, it means Silver Wheaton didn’t sell all the amount of attributed silver and gold produced during the past quarter. This will also translate to lower revenue. But the company will be able to sell these silver equivalent ounces in future quarters.

Due to the weakness in the precious metals markets, the company’s operating profit may have also contacted during the past quarter.

The table below shows the changes in the profitability of selling silver and gold during the first quarter of 2013 and 2014.

SLW Q1 PROFITSource of data from Silver Wheaton’s website.

The company’s gold operations accounted for 27% of its total revenue — back in the same quarter in 2013 this ratio was only 13%. The rise in Silver Wheaton’s gold operations is likely to cut down its profit margin because gold is less profitable than silver, as presented in the table above.

But Silver Wheaton isn’t the only precious metals company that is likely to show a drop in profitability and revenue during the first quarter. Royal Gold (NASDAQ: RGLD), a leading precious metals royalty company, presented in its recently quarter report a 22% plunge in revenue, year over year. This fall is mostly related to the 21% decline in the average quarterly price of gold. Moreover, its operating profit also contracted from 58% in the first quarter of 2013 to 49.5% in the first quarter of 2014. Despite this fall in profitability, the company didn’t cut down its quarterly dividend, which is set at $0.21 per share.

Conversely, the decline in Silver Wheaton’s profit margin led to a cut in its quarterly dividend payment to $0.07 per share. If the company’s profitability falls again in future quarters, it could further reduce its dividend paycheck.

Foolish bottom line

Silver Wheaton’s forthcoming earnings report could impact the company’s stock in the short run, especially if the company doesn’t reach its quarterly goals. But the big picture will remain the company’s ability to sign new contracts with precious metals mines and the developments in the silver market. These two factors will still prevail in affecting the company’s valuation.

For further reading:

 

Disclaimer: The author holds no positions in stocks mentioned and does not plan to initiate positions within 120 hours of the posting of this article. This article is to be used for educational, research and informational purposes only and does not constitute investment advice. There are no guarantees, expressed or implied, of future positive returns in regards to the subject matter contained herein. Understand the risks inherent in investing before making the decision to invest or consult an investment professional for more information. Reasonable due diligence has been performed in regards to the information in this article. However, the author expressly disclaims any liability for accidental omissions of information or errors in fact.