Silver Wheaton (NYSE:SLW), a leading silver streaming company, will release its first quarter earnings report on May 8. In anticipation of its release, let's take a closer look at this streaming company, including its quarterly goals, the market's expectations, and its performance compared to other leading precious metals companies.
According to the company's 2014 outlook, its attributed production is set to reach 36 million silver equivalent ounces via the mines Silver Wheaton has streaming agreements with.
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 into 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 estimate that Silver Wheaton's revenue reached only $187 million during the first quarter. Further, analysts are looking for quarterly earnings per share of $0.23. If Silver Wheaton doesn't reach these numbers, it could put pressure on its stock. One factor that could result in lower revenue is a rise in the amount of the company's 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 31, 2013. If this amount rises, it means Silver Wheaton didn't sell all the 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 contracted 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.
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 most recent quarterly 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 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.
OPEC is absolutely terrified of this game-changer
Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling OPEC's Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock... and join Buffett in his quest for a veritable LANDSLIDE of profits!
Lior Cohen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.