Market Overview

Graham Corporation Reports Record Orders and Backlog for Fiscal Year 2014; Q4 Revs of $26.1M & diluted EPS of $0.23

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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 fourth quarter and fiscal year ended March 31, 2014 ("fiscal 2014").

Mr. James R. Lines, Graham's President and Chief Executive Officer, commented, "We delivered solid results in fiscal 2014 while continuing our investments for future growth. We believe the successful execution of the large volume of orders we received in a concentrated surge during the year validated the value of the multi-year investments we made in our people and processes over the last several years. Our engineering team skillfully executed over $80 million in new orders received in the first half of the year with lead times that averaged 15% less than historic levels. We remain committed to earnings expansion, including investments in infrastructure this past year to support the strong growth we expect in fiscal 2015 and beyond."

Strong Sales in U.S. Markets Help to Offset Lower International Sales in Fiscal 2014 Fourth Quarter

Net sales in the fourth quarter of fiscal 2014 were $26.1 million, down from net sales of $30.9 million in the fourth quarter of the fiscal year ended March 31, 2013 ("fiscal 2013"). Sales to the U.S. market were $20.3 million, or 78% of total sales, up $3.9 million, or 23.8%. This increase was driven by improving fundamentals in the North American chemical industry. International sales decreased by 60% to $5.8 million compared with the prior-year period. Lower sales to Asia and the Middle East were partially offset by growth in South America.

Sales to the chemical/petrochemical industry more than doubled to $10.5 million. This was offset by a $7.9 million reduction in sales to the refining industry, a $2.4 million reduction in power industry sales and a modest reduction in sales to other commercial and industrial markets.

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.

Fourth Quarter Fiscal 2014 Operating Performance

Gross profit was $7.4 million, or 28.4% of sales, compared with $10.5 million, or 34.1% of sales, in the same period of the prior fiscal year and $6.1 million, or 26.0% of sales, in the trailing third quarter of fiscal 2014. Lower volume and changes in product mix negatively impacted gross margin when compared with the prior-year period. When compared with the trailing third quarter, gross margin improved on higher volume.

Selling, general and administrative ("SG&A") expenses were $4.2 million, down from $4.9 million in the prior-year period. The decline in SG&A resulted from lower commissions associated with sales volume and elimination of non-recurring expenses that impacted the prior-year period. SG&A as a percent of sales increased to 16.3% in the fourth quarter of fiscal 2014 compared with 15.7% in the prior-year period.

Operating profit in the fourth quarter was $3.2 million, or 12.2% of sales, compared with $5.7 million, or 18.4% of sales, in the fourth quarter of fiscal 2013. When compared with the trailing third quarter, operating profit was up from $2.0 million, including a 370 basis point improvement in operating margin.

Earnings before interest, taxes, depreciation, and amortization ("EBITDA") was $3.7 million, or 14.3% of sales, compared with $6.2 million, or 20.1% of sales, in the same period of the prior fiscal year and $2.5 million, or 10.8% of sales, in the trailing third 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 $2.3 million, or $0.23 per diluted share, compared with $4.1 million, or $0.41 per diluted share, in the prior year's fourth quarter.

Fiscal 2014 Full-Year Review

Fiscal 2014 net sales of $102.2 million decreased by $2.7 million, or 2.6%, from fiscal 2013. U.S. sales increased by $8.2 million, or 14.6%, to $63.8 million for fiscal 2014, driven by sales to the petrochemical industry. International sales were $38.4 million and represented 38% of total sales in fiscal 2014, compared with $49.3 million, or 47% of total sales, in the prior year.

Gross profit was $31.8 million, unchanged from the prior year. As a percent of sales, gross margin increased to 31.1% from 30.3%. SG&A of $17.2 million was up $0.6 million. As a percentage of sales, SG&A was 16.8% in fiscal 2014 compared with 15.8% in the prior year. Fiscal 2013 SG&A benefitted from the reversal of a $975 thousand earn-out reserve related to Graham's acquisition of its wholly-owned subsidiary Energy Steel & Supply Co. ("Energy Steel").

EBITDA was $16.8 million, or 16.5% of sales, compared with $17.3 million, or 16.5% of sales, in fiscal 2013. 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 $10.1 million, down $1.0 million, or 9.0%, from the prior year. Per diluted share, fiscal 2014 earnings were $1.00 compared with $1.11 in the prior year. Fiscal 2013 benefitted from the previously mentioned reversal of the earn-out reserve associated with the Energy Steel acquisition. Excluding this benefit, fiscal 2013 adjusted net income was $10.2 million, or $1.01 per diluted share.

Strong, Flexible Balance Sheet

Cash, cash equivalents and investments at March 31, 2014 were $61.1 million compared with $51.7 million at March 31, 2013 and $63.9 million on December 31, 2013.

Cash provided by operations in fiscal 2014 was $15.2 million, up from $12.4 million of cash provided by operations during fiscal 2013.

Capital expenditures were $5.3 million in fiscal 2014 compared with $1.7 million in fiscal 2013. The majority of the increase in capital expenditures in fiscal 2014 was related to the production 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 facility expansion.

Graham had no borrowings outstanding under its credit facility or any long-term debt outstanding at March 31, 2014.

Strong Pipeline of Opportunities and Increasing Bid Activity

Orders during the fourth quarter of fiscal 2014 were $23.5 million, down 9.3% from $25.9 million in orders during the prior-year period and comparable with the trailing third quarter. Compared with the prior-year period, power, chemical/petrochemical industry and other commercial and industrial markets each had higher order levels, while orders for the refining industry were down.

During the fourth quarter of fiscal 2014, orders of $14.7 million, or 63%, were from U.S. customers, while orders from international markets accounted for $8.8 million of total orders.

For the year, orders were a record $128.2 million, up from $95.8 million in the prior year. Graham expects that orders will be variable between quarters, but that in the long-run orders will be relatively balanced between domestic and international markets.

Graham's backlog was $112.1 million at March 31, 2014 compared with $114.6 million at December 31, 2013 and $85.8 million at March 31, 2013. Approximately 26% of backlog at fiscal year end was for refinery projects, 28% was related to chemical and petrochemical projects, 16% was for power projects, including nuclear energy, 25% was for the defense industry and the remaining 5% was 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 March 31, 2014.

Strong Outlook for Fiscal 2015

Graham expects sales will be in a range of $120 to $130 million in fiscal 2015, which represents 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 within a range of 33% to 34%.

Mr. Lines concluded, "This is an exciting time for Graham. I believe that our markets are poised for expansion as our pipeline continues to be more robust than in past cycles. Accordingly, we are making investments in our capacity in a variety of ways. We plan to be prepared for strong growth and to effectively and efficiently provide both existing and new customers with our custom expertise and high quality service."

Webcast and Conference Call

Graham will host a conference call and live webcast today at 11:00 a.m. Eastern Time to review its financial condition and operating results for fourth quarter and fiscal 2014, 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 13579861. A telephonic replay will be available from approximately 2:00 p.m. Eastern Time on the day of call through Friday, June 6, 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 more than 77 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.

Posted-In: Earnings News Press Releases

 

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