- First quarter orders of $31.1 million, up 32% over
trailing quarter
- Record backlog of $114.8 million
- First quarter revenue was $28.5 million; diluted
earnings per share was $0.24
- Fiscal 2015 guidance confirmed; revenue expected to
grow 17% to 27% to range of $120 to $130 million
Graham Corporation (NYSE:GHM), a global business that designs,
manufactures and sells critical equipment for the oil refining,
petrochemical and power industries, including the supply of
components and raw materials to nuclear energy facilities, today
reported its financial results for its first quarter ended June 30,
2014. Graham's current fiscal year ("fiscal 2015") ends March 31,
2015.
Mr. James R. Lines, Graham's President and Chief Executive
Officer, commented, "We had a solid start to fiscal 2015 and I
believe we are on track to achieve our growth targets for the year.
Margins during the quarter reflected both the project mix in
backlog and the fact that we remain in the early stages of a
recovery in our markets. We are encouraged that the recovery
appears to be steadily advancing, which we believe is reflected in
our strong and growing backlog. We continue to invest in our
facilities, processes and people while at the same time reaching
for opportunities to expand our growth potential."
U.S. Chemical/Petrochemical Industry Drives Sales in
Quarter (refer to sales by industry and region in
accompanying tables)
Net sales in the first quarter of fiscal 2015 were $28.5
million, up from net sales of $28.3 million in the first quarter of
the fiscal year ended March 31, 2014 ("fiscal 2014"). Sales to the
U.S. market were $22.2 million, or 78% of total sales, up $7.2
million, or 48%, from the prior year. This increase was driven by
infrastructure investments in the North American
chemical/petrochemical industry. International sales decreased to
$6.3 million with lower sales compared with the prior year in
nearly all international regions.
Fluctuations in Graham's sales among geographic locations and
industries can vary measurably from quarter-to-quarter based on the
timing and magnitude of projects. Graham does not believe that such
quarter-to-quarter fluctuations are indicative of business trends,
which it believes are more apparent on a trailing one to two year
basis.
First Quarter Fiscal 2015 Operating
Performance
Gross profit was $7.9 million, or 27.8% of sales, compared with
$10.0 million, or 35.4% of sales, in the same period of the prior
fiscal year and $7.4 million, or 28.4% of sales, in the trailing
fourth quarter of fiscal 2014. Differences in product mix
negatively impacted gross margin when compared with both the
prior-year period and the trailing fourth quarter, and resulted in
gross margins below what we anticipate for fiscal 2015.
Selling, general and administrative ("SG&A") expenses were
$4.3 million, relatively consistent with the prior-year period.
SG&A as a percent of sales decreased to 15.3% in the first
quarter of fiscal 2015 compared with 15.6% in the prior-year
period.
Operating profit in the first quarter was $3.6 million, or 12.6%
of sales, compared with $5.6 million, or 19.9% of sales, in the
first quarter of fiscal 2014. When compared with the trailing
fourth quarter of fiscal 2014, operating profit was up from $3.2
million, reflecting a 40 basis point improvement in operating
margin.
Earnings before interest, taxes, depreciation, and amortization
("EBITDA") was $4.2 million, or 14.6% of sales, compared with $6.2
million, or 21.8% of sales, in the same period of the prior fiscal
year and $3.7 million, or 14.3% of sales, in the trailing fourth
quarter. Graham believes that when used in conjunction with
measures prepared in accordance with U.S. generally accepted
accounting principles ("GAAP"), EBITDA, which is a non-GAAP
measure, helps in the understanding of its operating performance.
Graham's credit facility also contains ratios based on EBITDA. See
the attached tables for important disclosures regarding Graham's
use of EBITDA as well as a reconciliation of net income to
EBITDA.
Net income was $2.4 million, or $0.24 per diluted share,
compared with $3.8 million, or $0.38 per diluted share, in the
prior year's first quarter.
Strong, Flexible Balance Sheet to Support
Growth
Cash, cash equivalents and investments at June 30, 2014 were
$61.4 million compared with $61.1 million at March 31, 2014.
Cash provided by operations in the first quarter of fiscal 2015
was $3.2 million, up from $2.0 million of cash provided by
operations during the first quarter of fiscal 2014. The increase
was driven primarily by a reduction in working capital usage during
the fiscal 2015 quarter.
Capital expenditures were $2.6 million in the first quarter of
fiscal 2015 compared with $0.3 million in first quarter of fiscal
2014. The majority of the increase was related to the ongoing
capacity expansion at the Company's Batavia, New York facility,
which is on track for completion in the second quarter of fiscal
2015. Capital expenditures in fiscal 2015 are expected to be in the
range of $5.5 million to $6.0 million, of which approximately 60%
is expected to be utilized for the Batavia expansion.
Graham had no borrowings outstanding under its credit facility
or any long-term debt outstanding at June 30, 2014.
Strong Pipeline of Opportunities and Increasing Bid
Activity
Orders during the first quarter of fiscal 2015 were $31.1
million, compared with $32.8 million during the prior-year first
quarter and $23.5 million in the trailing fiscal 2014 fourth
quarter. Compared with the trailing quarterly period, the Company's
refining and chemical/petrochemical industry markets each had
higher order levels, while orders for the power industry and its
other commercial and industrial markets were down. During the first
quarter of fiscal 2015, orders of $16.4 million, or 53%, were from
U.S. customers, while orders from international markets accounted
for $14.7 million of total orders, driven by sales to Canada, Asia
and South America.
Graham expects that order levels will be variable between
quarters, but that in the long-run orders will be relatively
balanced between domestic and international markets.
The Company's backlog was $114.8 million at June 30, 2014
compared with $112.1 million at March 31, 2014 and $90.4 million at
June 30, 2013. Approximately 32% of projects in backlog at the end
of the fiscal 2015 first quarter were for refinery projects, 27%
were related to chemical and petrochemical projects, 13% were for
power projects, including nuclear energy, 23% were for the defense
industry and the remaining 5% were related to other industrial or
commercial applications.
Approximately 70% to 75% of orders currently in backlog are
expected to be converted to sales within the next 12 months. Graham
had no projects on hold in backlog as of June 30, 2014.
Fiscal 2015 Outlook Remains Unchanged
Graham continues to expect fiscal 2015 sales will be in a range
of $120 to $130 million, representing anticipated growth of
approximately 17% to 27% compared with fiscal 2014. Gross margin
for fiscal 2015 is expected to be between 30% and 32%, as pricing
power is still consistent with historic early-cycle margins.
SG&A expense is expected to be between 15% and 16% of sales for
fiscal 2015. Graham expects its fiscal 2015 full year tax rate to
be between 33% and 34%.
Mr. Lines concluded, "The strong bidding activity we experienced
during fiscal 2014 has continued into fiscal 2015 and we expect
that order levels will remain strong. We believe that our key end
markets of oil refining, petrochemical and other related energy
markets are improving. We further believe that the current activity
level within our pipeline continues to be more robust than in past
expansion cycles, providing us opportunities to reach our goals for
fiscal 2015 and beyond."
Webcast and Conference Call
Graham will host a conference call and live webcast today at
2:00 p.m. Eastern Time to review its financial condition and
operating results for its first quarter of fiscal 2015, as well as
its strategy and outlook. The review will be accompanied by a slide
presentation which will be made available immediately prior to the
conference call on Graham's website at www.graham-mfg.com under the
heading "Investor Relations." A question-and-answer session will
follow the formal presentation.
Graham's conference call can be accessed by calling
1-201-689-8560. Alternatively, the webcast can be monitored on
Graham's website at www.graham-mfg.com.
To listen to the archived call, dial 1-858-384-5517, and enter
replay pin number 13585606. A telephonic replay will be
available from approximately 5:00 p.m. Eastern Time on the day of
call through Thursday, August 7, 2014. A transcript of the
call will be placed on Graham's website once available.
ABOUT GRAHAM CORPORATION
With world-renowned engineering expertise in vacuum and heat
transfer technology, Graham Corporation is a global designer,
manufacturer and supplier of custom-engineered ejectors, pumps,
condensers, vacuum systems and heat exchangers. For nearly 80
years, Graham has built a reputation for top quality, reliable
products and high-standards of customer service. Sold either as
components or complete system solutions, the principal markets for
Graham's equipment are energy, including oil and gas refining and
nuclear and other power generation, chemical/petrochemical and
other process industries. In addition, Graham's equipment can be
found in diverse applications, such as metal refining, pulp and
paper processing, shipbuilding, water heating, refrigeration,
desalination, food processing, pharmaceutical, heating, ventilating
and air conditioning, and in nuclear power installations, both
inside the reactor vessel and outside the containment
vessel.
Graham Corporation's subsidiary Energy Steel & Supply Co. is
a leading code fabrication and specialty machining company
dedicated exclusively to the nuclear power industry.
Graham Corporation's reach spans the globe. Its equipment is
installed in facilities from North and South America to Europe,
Asia, Africa and the Middle East. Graham routinely posts news and
other important information on its
website,www.graham-mfg.com, where additional
comprehensive information on Graham Corporation and its
subsidiaries can be
found.
Safe Harbor Regarding Forward Looking
Statements
This news release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as
amended.
Forward-looking statements are subject to risks, uncertainties
and assumptions and are identified by words such as "expects,"
"estimates," "projects," "typically," "anticipates," "believes,"
"appears," "could," "opportunities," seeking," "plans," and
other similar words. All statements addressing operating
performance, events, or developments that Graham Corporation
expects or anticipates will occur in the future, including but not
limited to, the expected performance of Energy Steel & Supply
Co, expected expansion and growth opportunities within the domestic
and international markets, anticipated revenue, the timing of
conversion of backlog to sales, market presence, profit margins,
tax rates, foreign sales operations, its ability to improve cost
competitiveness, customer preferences, changes in market conditions
in the industries in which it operates, changes in general economic
conditions and customer behavior, forecasts regarding the timing
and scope of the economic recovery in its markets, and its
acquisition and growth strategy are forward-looking statements.
Because they are forward-looking, they should be evaluated in
light of important risk factors and uncertainties. These risk
factors and uncertainties are more fully described in Graham
Corporation's most recent Annual Report filed with the Securities
and Exchange Commission, included under the heading entitled "Risk
Factors."
Should one or more of these risks or uncertainties materialize,
or should any of Graham Corporation's underlying assumptions prove
incorrect, actual results may vary materially from those currently
anticipated. In addition, undue reliance should not be placed
on Graham Corporation's forward-looking statements. Except as
required by law, Graham Corporation disclaims any obligation to
update or publicly announce any revisions to any of the
forward-looking statements contained in this news release.
FINANCIAL TABLES FOLLOW
|
|
Graham Corporation
First Quarter Fiscal 2015 |
Consolidated Statements
of Operations—Unaudited |
(Amounts in thousands, except
per share data) |
|
|
Three Months
Ended June 30, |
|
|
2014 |
2013 |
% Change |
|
|
|
|
Net sales |
$ 28,502 |
$ 28,256 |
0.9% |
|
|
|
|
Cost of products
sold |
20,570 |
18,241 |
12.8% |
Gross profit |
7,932 |
10,015 |
(20.8%) |
Gross profit margin |
27.8% |
35.4% |
|
|
|
|
|
Other expenses and income: |
|
|
|
Selling, general and
administrative |
4,295 |
4,346 |
(1.2%) |
Selling, general and
administrative - amortization |
54 |
57 |
(5.3%) |
|
4,349 |
4,403 |
(1.2%) |
|
|
|
|
Operating
profit |
3,583 |
5,612 |
(36.2%) |
Operating profit margin |
12.6% |
19.9% |
|
|
|
|
|
Interest income |
(46) |
(11) |
318.2% |
Interest expense |
3 |
5 |
(40.0%) |
Income before provision for income
taxes |
3,626 |
5,618 |
(35.5%) |
Provision for income taxes |
1,234 |
1,810 |
(31.8%) |
|
|
|
|
Net income |
$ 2,392 |
$ 3,808 |
(37.2%) |
|
|
|
|
|
|
|
|
Per share data |
|
|
|
Basic: |
|
|
|
Net income |
$ 0.24 |
$ 0.38 |
(36.8%) |
Diluted: |
|
|
|
Net income |
$ 0.24 |
$ 0.38 |
(36.8%) |
|
|
|
|
Weighted average common shares
outstanding: |
|
|
|
Basic |
10,105 |
10,057 |
|
Diluted |
10,127 |
10,086 |
|
|
|
|
|
Dividends declared per share |
$ 0.04 |
$ 0.03 |
33.3% |
|
|
Graham Corporation
First Quarter Fiscal 2015 |
Consolidated Balance
Sheets—Unaudited |
(Amounts in thousands, except
per share data) |
|
|
June
30, |
March
31, |
|
2014 |
2014 |
Assets |
|
|
Current assets: |
|
|
Cash and cash
equivalents |
$ 46,410 |
$ 32,146 |
Investments |
15,000 |
29,000 |
Trade accounts receivable, net
of allowances ($22 and $46 at June 30 and June 30, 2014,
respectively) |
12,297 |
10,339 |
Unbilled revenue |
7,634 |
7,830 |
Inventories |
12,817 |
16,518 |
Prepaid expenses and other
current assets |
865 |
457 |
Income taxes
receivable |
-- |
498 |
Deferred income tax
asset |
715 |
668 |
Total current assets |
95,738 |
97,456 |
Property, plant and equipment, net |
18,559 |
16,449 |
Prepaid pension asset |
6,077 |
5,759 |
Goodwill |
6,938 |
6,938 |
Permits |
10,300 |
10,300 |
Other intangible assets, net |
4,563 |
4,608 |
Other assets |
213 |
124 |
Total
assets |
$ 142,388 |
$ 141,634 |
|
|
|
Liabilities and stockholders'
equity |
|
|
Current liabilities: |
|
|
Current portion of capital
lease obligations |
$ 70 |
$ 80 |
Accounts payable |
7,132 |
10,084 |
Accrued compensation |
5,505 |
5,701 |
Accrued expenses and other
current liabilities |
2,688 |
2,233 |
Customer deposits |
8,515 |
8,012 |
Income taxes payable |
738 |
-- |
Total current
liabilities |
24,648 |
26,110 |
|
|
|
Capital lease obligations |
124 |
136 |
Accrued compensation |
-- |
158 |
Deferred income tax liability |
8,301 |
8,197 |
Accrued pension liability |
283 |
272 |
Accrued postretirement benefits |
862 |
853 |
Total
liabilities |
34,218 |
35,726 |
|
|
|
Commitments and contingencies |
|
|
|
|
|
Stockholders' equity: |
|
|
Preferred stock, $1.00 par
value - |
|
|
Authorized, 500 shares |
|
|
Common stock, $.10 par value
- |
|
|
Authorized, 25,500 shares |
|
|
Issued, 10,430 and 10,409
shares at June 30, 2014 and March 31, 2014, respectively |
1,043 |
1,041 |
Capital in excess of par
value |
20,458 |
20,274 |
Retained earnings |
95,456 |
93,469 |
Accumulated other comprehensive
loss |
(5,676) |
(5,765) |
Treasury stock, 311 shares at
each of June 30, 2014 and March 31, 2014 |
(3,111) |
(3,111) |
Total stockholders'
equity |
108,170 |
105,908 |
Total liabilities and
stockholders' equity |
$ 142,388 |
$ 141,634 |
|
|
Graham Corporation
First Quarter Fiscal 2015 |
Consolidated Statements
of Cash Flows—Unaudited |
(Amounts in thousands) |
|
|
Three Months
Ended |
|
June 30, |
|
2014 |
2013 |
|
|
|
Operating activities: |
|
|
Net income |
$ 2,392 |
$ 3,808 |
Adjustments to reconcile net
income to net cash provided by operating activities: |
|
|
Depreciation |
520 |
493 |
Amortization |
54 |
57 |
Amortization of unrecognized
prior service cost and actuarial losses |
130 |
221 |
Discount accretion on
investments |
-- |
(3) |
Stock-based compensation
expense |
123 |
195 |
Deferred income taxes |
(7) |
183 |
(Increase) decrease in
operating assets: |
|
|
Accounts receivable |
(1,958) |
(7,900) |
Unbilled revenue |
196 |
2,992 |
Inventories… |
3,702 |
1,843 |
Prepaid expenses and other
current and non-current assets |
(487) |
(645) |
Prepaid pension asset |
(320) |
(198) |
Increase (decrease) in
operating liabilities: |
|
|
Accounts payable |
(3,015) |
(1,731) |
Accrued compensation, accrued
expenses and other current and non-current liabilities |
259 |
234 |
Customer deposits |
502 |
797 |
Income taxes
payable/receivable |
1,236 |
1,628 |
Long-term portion of accrued
compensation, accrued pension liability and accrued postretirement
benefits |
(138) |
26 |
Net cash provided by
operating activities |
3,189 |
2,000 |
|
|
|
Investing activities: |
|
|
Purchase of property, plant and
equipment |
(2,569) |
(295) |
Purchase of investments |
(5,000) |
(22,999) |
Redemption of investments at
maturity |
19,000 |
23,000 |
Net cash provided by
(used by) investing activities |
11,431 |
(294) |
|
|
|
Financing activities: |
|
|
Principal repayments on capital
lease obligations |
(21) |
(21) |
Issuance of common stock |
29 |
48 |
Dividends paid |
(405) |
(301) |
Excess tax benefit on stock
awards |
34 |
61 |
Net cash used by
financing activities |
(363) |
(213) |
Effect of exchange rate changes
on cash |
7 |
6 |
Net increase (decrease) in cash
and cash equivalents |
14,264 |
1,499 |
Cash and cash equivalents at
beginning of year |
32,146 |
24,194 |
Cash and cash equivalents at
end of period |
$ 46,410 |
$ 25,693 |
|
|
Graham Corporation
First Quarter Fiscal 2015 |
EBITDA
Reconciliation—Unaudited |
(Amounts in thousands) |
|
|
Three Months
Ended |
|
June 30, |
|
2014 |
2013 |
Net income |
$ 2,392 |
$ 3,808 |
+Net interest income |
(43) |
(6) |
+Income taxes |
1,234 |
1,810 |
+Depreciation and amortization |
574 |
550 |
EBITDA |
$ 4,157 |
$ 6,162 |
EBITDA margin % |
14.6% |
21.8% |
|
|
|
EBITDA is defined as consolidated net income before interest
expense and income, income taxes, and depreciation and
amortization. EBITDA is not a measure determined in accordance with
generally accepted accounting principles in the United States,
commonly known as GAAP. Nevertheless, Graham believes that
providing non-GAAP information such as EBITDA is important for
investors and other readers of Graham's financial statements, as it
is used as an analytical indicator by Graham's management to better
understand operating performance. Graham's credit facility also
contains ratios based on EBITDA. Because EBITDA is a non-GAAP
measure and is thus susceptible to varying calculations, EBITDA, as
presented, may not be directly comparable to other similarly titled
measures used by other companies.
|
Graham Corporation
First Quarter Fiscal 2015 |
Additional
Information—Unaudited |
|
ORDER & BACKLOG
TREND |
($ in millions) |
|
|
|
|
|
|
|
|
Q114 |
Q214 |
Q314 |
Q414 |
FY2014 |
Q115 |
|
6/30/13 |
9/30/13 |
12/31/13 |
3/31/14 |
Total |
6/30/14 |
Orders |
$32.8 |
$48.4 |
$23.5 |
$23.5 |
$128.2 |
$31.1 |
Backlog |
$90.4 |
$114.4 |
$114.6 |
$112.1 |
$112.1 |
$114.8 |
|
SALES BY INDUSTRY FY
2015 |
($ in millions) |
|
|
|
|
|
FY 2015 |
Q1 |
% of |
|
6/30/14 |
Total |
Refining |
$6.6 |
23% |
Chemical/ Petrochemical |
$11.7 |
41% |
Power |
$4.9 |
17% |
Other Commercial and Industrial* |
$5.3 |
19% |
Total |
$28.5 |
|
|
SALES BY
INDUSTRY FY 2014 |
($ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FY 2014 |
Q1 |
% of |
Q2 |
% of |
Q3 |
% of |
Q4 |
% of |
|
% of |
|
6/30/13 |
Total |
9/30/13 |
Total |
12/31/13 |
Total |
3/31/14 |
Total |
FY2014 |
Total |
Refining |
$12.6 |
45% |
$10.5 |
43% |
$7.3 |
31% |
$5.8 |
22% |
$36.2 |
35% |
Chemical/ Petrochemical |
$4.6 |
16% |
$4.0 |
16% |
$5.4 |
23% |
$10.5 |
40% |
$24.5 |
24% |
Power |
$7.7 |
27% |
$5.7 |
23% |
$5.3 |
23% |
$4.9 |
19% |
$23.5 |
23% |
Other Commercial and Industrial* |
$3.4 |
12% |
$4.3 |
18% |
$5.4 |
23% |
$4.9 |
19% |
$18.0 |
18% |
Total |
$28.3 |
|
$24.5 |
|
$23.4 |
|
$26.1 |
|
$102.2 |
|
*Includes the
defense industry. |
|
|
Graham Corporation
First Quarter Fiscal 2015 |
Additional
Information—Unaudited |
(Continued) |
|
SALES BY REGION FY
2015 |
($ in millions) |
FY 2015 |
Q1 |
% of |
|
6/30/14 |
Total |
United States |
$22.2 |
78% |
Middle East |
$1.5 |
5% |
Asia |
$2.4 |
8% |
Other |
$2.4 |
9% |
Total |
$28.5 |
|
|
|
|
|
|
SALES BY REGION FY
2014 |
|
|
|
|
($ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FY 2014 |
Q1 |
% of |
Q2 |
% of |
Q3 |
% of |
Q4 |
% of |
|
% of |
|
6/30/13 |
Total |
9/30/13 |
Total |
12/31/13 |
Total |
3/31/14 |
Total |
FY2014 |
Total |
United States |
$15.0 |
53% |
$14.1 |
58% |
$14.5 |
62% |
$20.3 |
78% |
$63.8 |
62% |
Middle East |
$1.5 |
5% |
$0.9 |
4% |
$0.8 |
3% |
$1.1 |
4% |
$4.3 |
4% |
Asia |
$6.5 |
23% |
$2.8 |
11% |
$1.5 |
7% |
$0.6 |
2% |
$11.5 |
11% |
Other |
$5.3 |
19% |
$6.7 |
27% |
$6.6 |
28% |
$4.1 |
16% |
$22.6 |
23% |
Total |
$28.3 |
|
$24.5 |
|
$23.4 |
|
$26.1 |
|
$102.2 |
|
CONTACT: Jeffrey F. Glajch
Vice President - Finance and CFO
Phone: (585) 343-2216
Email: jglajch@graham-mfg.com
Deborah K. Pawlowski / Karen L. Howard
Kei Advisors LLC
Phone: (716) 843-3908 / (716) 843-3942
Email: dpawlowski@keiadvisors.com / khoward@keiadvisors.com
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