Should Silver Wheaton Corp Investors Be Worried About This Trend?

Silver Wheaton recently released its quarterly earnings report. Let’s take a closer look at the company’s performance in the past quarter and the damage done by lower silver prices.

May 20, 2014 at 10:00AM

Silver Wheaton (NYSE:SLW) announced its first-quarter results at the end of last week. The Canadian silver streaming company reported net earnings of $79.8 million, or $0.22 per share. This represents a 40% plunge from last year's first quarter but was in line with analysts' estimates. What are the key takeaways from the report for investors?

The company increased its precious metals sales (in ounces) by nearly 8% year over year. Most of this growth is due to the 78% spike in gold sales -- this jump is related to Silver Wheaton's gold stream contracts from back in February 2013, with Vale's Salobo and Sudbury mines. Moreover, the company's attributable precious metals production, via its streaming contracts, was in line with its 2014 guidance. The company also maintained the amount of silver equivalent produced and not yet delivered at 6.3 million silver equivalent ounces -- nearly unchanged from the fourth quarter of 2013. This means the company sold most of the precious metals it received.

The table below shows the changes in Silver Wheaton's gold and silver sales, including the changes in ounces sold and average realized prices.

Slw Q

Source of data: Silver Wheaton

As you can see, the rise in precious metals sales only partly offset the plunge in gold and silver prices. 

The lower prices of gold and silver also lowered the company's operating profit, which reached 49.3% in the first quarter of 2014. This is nearly 19.3 percentage points below Silver Wheaton's profit margin back in the first quarter of 2013. Furthermore, its operating cash flow fell from $165 million in the first quarter of 2013 to $115 million. 

Despite the recent decline in profitability and in operating cash flow, the company's quarterly dividend payment remained unchanged, at $0.07 per share. Since Silver Wheaton calculates its dividend based on 20% of the average operating cash flow of the past four quarters, a decline in operating cash flow will lead to a lower dividend payment. Thus, in the coming quarters, the ongoing low prices of precious metals could eventually reduce the company's operating cash flow, which will translate to a lower dividend paycheck. 

Silver Wheaton's recent earnings report showed it was able to reach its quarterly goals in terms of precious metals sales and earnings. Nonetheless, the low prices of gold and silver impacted the company's profitability. Even the sharp rise in amount of precious metals ounces sold didn't offset the negative price effect. In the coming quarters, low precious metals prices could cut into Silver Wheaton's dividend payments. But as long as Silver Wheaton keeps increasing its attributable precious metals production, the company will be able to partly offset the negative impact the low prices of precious metals have on its bottom line.

Why does Buffett love this energy company so much?
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 details this company that already has over 50% market share. Just click HERE to discover more about 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information