Will Silver Wheaton Reach Its Quarterly Goals?

| About: Wheaton Precious (WPM)
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Silver Wheaton will release its second quarter earnings report next week.

The company’s attributed production is expected to rise by 5% in gold and 13% in silver.

The rise in its revenue from gold is likely to bring down its profit margin.

Silver Wheaton (SLW) has added more than 31% to its value during the year (up to date). Will its rally continue? Besides the progress in the silver market, the company's performance in the past quarter could also impact its stock. The silver streaming company will release its second quarter earnings report on August 13th. Let's examine the main issues related to its upcoming earnings report.

The current estimates are that Silver Wheaton's earnings per share will reach 20 cents in the second quarter. This is slightly below last quarter's level and inline with the EPS in the second quarter last year. If the company meets the market expectation or even exceeds it, this could pull up the company's stock.

Source of data from Bloomberg

The table above shows the movement of Silver Wheaton's stock the day of the release of past quarterly earnings reports and the percent changes in silver prices.

In the past couple of earnings releases the market's reaction was positive despite the sharp drop in the price of silver on the same day. This finding suggests the market does react to this news and could do so again in the upcoming report.

The main issue will be whether Silver Wheaton will reach its volume of precious metals sold. The company's volume of silver sold is likely to have increased by roughly 13%, year-over-year. This is based on its annual guidance of 26.7 million ounces of silver. Moreover, its gold sales are expected to rise by 5% to reach over 35,000 ounces. Despite the higher volume of gold and silver sold, the lower precious metals prices are likely to have curbed down revenues. The table below shows the expected ounces sold, revenues and prices of gold and silver in the second quarter of 2013 and 2014.

Source of data from Silver Wheaton's website.

During the past year, the company has increased its gold sales compared to silver due to its stake in mines such as Sudbury and Salobo. Alas, the profit margin from selling gold is lower than silver, as indicated in the table below.

Source of data from Silver Wheaton's website.

As you can see, the profit margin on gold and silver has declined in the past year. Moreover, the expected lower profit margin is likely to reflect in the company's earnings.

Based on the above, Silver Wheaton is likely to show a sharp drop in revenue. If the company reaches its quarterly goals in terms of attributed production this could keep pulling up its stock. For more see: Will Silver Remain Forever $21?

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.