(Source: Business Wire)
Graham Corporation (NYSE Amex: GHM), a manufacturer of critical equipment for the oil refinery, petrochemical and power industries, today reported financial results for its first quarter ended June 30, 2009. Graham's current fiscal year ends March 31, 2010, and is referred to as "fiscal 2010."
Net sales were $20.1 million in the quarter, down 27.2% compared with net sales of $27.6 million in the prior year's first quarter. Net income in the first quarter was $3.5 million, or $0.35 per diluted share, a decline of 38.1% compared with net income of $5.7 million, or $0.56 per diluted share, in the prior year's first quarter.
Mr. James R. Lines, Graham's President and Chief Executive Officer, commented, "As expected during this contraction in the markets for refinery and petrochemical equipment, sales and orders are down measurably. Our unusually strong gross margin for the level of sales during the first quarter was primarily related to an unexpected and rapid short-term reduction in the cost of specialty and other materials."
For the fiscal 2010 first quarter, sales of condensers advanced 12.0% to $5.2 million, while ejector sales were down 13.6% to $8.0 million. Aftermarket, heat exchangers, and pump packages sales combined were down 49.6% to $6.9 million. Condenser sales in the first quarter of fiscal 2010 were driven by orders won in the first half of the fiscal year ended March 31, 2009, referred to as "fiscal 2009," and resulted primarily from refinery and petrochemical projects.
U.S. sales declined $8.3 million, or 44.9%, to $10.2 million, representing 51% of total sales, in the first quarter of fiscal 2010. By comparison, U.S. sales were $18.6 million, representing 67% of total sales, in the same quarter of fiscal 2009. International sales during the first quarter were $9.9 million, representing 49% of total sales, up from $9.0 million, or 33% of total sales, during the same quarter of fiscal 2009. A significant advance in sales to Asia was more than offset by declines in sales to the Middle East, Canada, South America and Western Europe. Fluctuations in sales among products and geographic locations can vary measurably from quarter to quarter based on the timing and magnitude of projects. Graham generally does not believe that such quarter-to-quarter fluctuations are indicative of business trends, which are more visible on a trailing 12-month basis. Nevertheless, Graham does believe that international sales will comprise a larger portion of future revenue in fiscal 2010 and beyond.
In Graham's leading industries, 46% of sales in the first quarter were to the refining industry, compared with 52% of sales in the same period during the prior fiscal year. Approximately 24% of sales were to the chemical/petrochemical industry during the first quarter, compared with 19% in the first quarter of fiscal 2009.
Managing Operational Effectiveness
Gross profit was $8.3 million, or 41.1% of sales, in the first quarter of fiscal 2010, compared with $12.2 million, or 44.2% of sales, in the same period of the prior fiscal year. During the quarter, gross profit remained at a historically high level as a result of orders completed that originated prior to the sharp reduction in market demand in the quarter ended December 31, 2008. Also, the recent rapid decline in material costs resulted in significant margin improvement for the quarter.
Selling, general and administrative ("SG&A") expenses in the first quarter were $3.2 million, or 16.1% of sales, compared with $3.8 million, or 13.8% of sales, in the first quarter of fiscal 2009. The decrease in SG&A expenses in the current year's first quarter compared with the same quarter of fiscal 2009 was a result of decreased commission accruals related to the decline in sales, as well as to reduced salaries and benefits related to the restructuring implemented by Graham during the fourth quarter of fiscal 2009. Graham expects that SG&A will be in the range of $13 to $14 million for full-year fiscal 2010.
Mr. Lines noted, "Recognizing early in the third quarter of fiscal 2009 that we were entering the contraction phase of the oil industry cycle, we developed plans to size the organization based on our expectations and experience in prior contractions. This restructuring took place in the fourth quarter of fiscal 2009 and its results are apparent in the first quarter's results. We do not intend, however, to impede either our capabilities to gain market share during this downturn or our ability to rapidly scale operations back up when there is improvement in our markets. In fact, we have made strategic additions to our sales staff."
Interest income in the first quarter of fiscal 2010 declined to $18 thousand compared with $131 thousand in the same period of the prior fiscal year, primarily as a result of a significant decline in current treasury yields compared with a year ago.
Graham's effective tax rate was 30.3% in the first quarter of fiscal 2010, which reflects the expected annual effective tax rate for full-year fiscal 2010 of approximately 30% to 31%. This compares with an effective tax rate of 33.3% for the first quarter of fiscal 2009 and 34.7% for full-year fiscal 2009. The lower expected rate for fiscal 2010 reflects the allowable level of tax deductions on lower expected pre-tax income.
Strong Balance Sheet with Significant Cash Position
Cash, cash equivalents and investments at June 30, 2009, were $45.3 million, compared with $46.2 million at March 31, 2009, and $45.0 million at June 30, 2008. The decline resulted primarily from the timing of accounts receivable. Approximately $42.1 million was invested in U.S. Treasury notes with maturity periods of 91 to 180 days at June 30, 2009. As of June 30, 2009, Graham had no borrowings against its $30.0 million revolving line of credit facility.
Net cash used in operating activities for the first quarter of fiscal 2010 was $0.5 million, compared with $6.9 million in net cash provided by operating activities in the prior year's first quarter. The decrease was a result of the decline in net income and the timing of receivables.
Capital expenditures were $80 thousand in the first quarter compared with $219 thousand in the prior year's first quarter. Capital expenditures in fiscal 2010 are expected to aggregate approximately $1.0 million, of which approximately 65% will be used for machinery and equipment, 28% will be used for information technology and 7% used for other expenditures. Approximately 50% of Graham's planned capital expenditures are expected to be used for productivity improvements and the balance for capitalized maintenance and other general purposes. Spending is expected to occur primarily in the latter half of the year.
Outlook
Orders during the first quarter of fiscal 2010 were $8.8 million, down from $27.8 million in orders received in the prior year's first quarter and $20.5 million in the trailing fourth quarter of fiscal 2009. The decline in orders occurred in all product categories. Graham expects orders to fluctuate measurably on a quarter to quarter basis as the industries and customers it serves evaluate their pipeline of projects and their changing economics based on project costs, commodity prices, global demand for refined products and the global economy.
Separately, Graham announced today that early in its fiscal second quarter it was awarded a $3.4 million ejector system order for a refinery in China. Graham has won seven ejector system orders out to bid in the last three years for Chinese refineries.
Graham's backlog was $37.0 million at June 30, 2009, down 23.3% from $48.3 million at March 31, 2009. During the first quarter of fiscal 2010, a $235 thousand order that had been on hold was returned to active status. At June 30, 2009, there were four remaining orders with a value of $4.2 million remaining on hold. No orders were cancelled in the first quarter of fiscal 2010.
Approximately 36% of projects in Graham's backlog are for refinery projects, 49% for chemical and petrochemical projects and 15% for power and other industrial commercial applications, compared with 49%, 28% and 23%, respectively, at June 30, 2008. Approximately 85% of backlog is expected to ship in the next twelve months.
Mr. Lines stated, "Although the pipeline of projects remains strong, there is still a wait and see' attitude among our customers. We expect that our markets will recover first in Asia, specifically China, and the Middle East. Along with our financial results, we believe that our announcement today that we won a $3.4 million order for a refinery in China is indicative that investment in new capacity is ongoing in international markets. Another indicator of where we believe our markets will recover first is the announcement made in June by Saudi Aramco/Total that they are moving forward with their large project in Jubail, Saudi Arabia. The request for bid for our type of equipment on that project would likely be seen in the next six to twelve months."
Mr. Lines concluded, "We expect to be profitable and to generate cash in fiscal 2010 and we continue to forecast fiscal 2010 revenue in the range of $60 million to $70 million. We also continue to expect that gross margin for the full year will be in the range of 28% to 31%, although likely in the upper end of that range."
Stock Buyback Program
On January 29, 2009, Graham's Board of Directors authorized a stock repurchase program, permitting the Company to repurchase up to 1.0 million shares of its common stock through July 30, 2009. On July 30, 2009, the Board of Directors extended its stock repurchase program through July 30, 2010. Graham repurchased 26 thousand shares under this program in the first quarter of fiscal 2010 at a cost of $229 thousand. Since the initiation of the program, the Company has repurchased 303,000 shares at a cost of $2.5 million.
Webcast and Conference Call
Graham will host a conference call and live webcast today at 11:00 a.m. EST. During the conference call and webcast, James R. Lines, President and Chief Executive Officer, and Jeffrey Glajch, Vice President - Finance & Administration and Chief Financial Officer, will review Graham's financial and operating results for the first quarter of fiscal 2010 as well as Graham's strategy and outlook. A question-and-answer session will follow.
Graham's conference call and live webcast can be accessed as follows:
The live webcast can be found at http://www.graham-mfg.com. Participants should go to the website 10 -15 minutes prior to the scheduled conference in order to register and download any necessary audio software.
The teleconference can be accessed by dialing 1-201-689-8560 and referencing conference ID number 328035 approximately 5 - 10 minutes prior to the call.
The conference call and webcast will be archived and can be reviewed as follows:
The webcast will be archived at http://www.graham-mfg.com and a transcript will be posted, once available. The webcast and transcript will remain available on Graham's website for approximately 30 days.
A telephonic replay can be heard by calling 1-201-612-7415, and entering account number 3055 and conference ID number 328035. The replay will be available through August 7, 2009, at 11:59 p.m. Eastern Time.
ABOUT GRAHAM CORPORATION
With world-renowned engineering expertise in vacuum and heat transfer technology, Graham Corporation is a global designer, manufacturer and supplier of ejectors, pumps, condensers, vacuum systems and heat exchangers. For over 70 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 the petrochemical, oil refining and electric power generation industries, including cogeneration and geothermal plants. Graham's equipment can be found in diverse applications, such as metal refining, pulp and paper processing, ship-building, water heating, refrigeration, desalination, food processing, pharmaceutical, heating, ventilating and air conditioning.
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 the Company can be found.
Safe Harbor Regarding Forward Looking Statements
This press 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," "anticipates," "believes," "could," 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, statements relating to anticipated revenues, profit margins, foreign sales operations, its strategy to build its global sales representative channel, the effectiveness of automation in expanding its engineering capacity, 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 and its acquisition 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 and Quarterly Reports 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 press release.
Graham Corporation First Quarter Fiscal 2010 Consolidated Statements of Operations and Retained Earnings (Amounts in thousands, except per share data) (Unaudited) Three Months Ended June 30, 2009 2008 Net sales $ 20,138 $ 27,647 Cost of products sold 11,860 15,429 Gross profit 8,278 12,218 Other expenses and income: Selling, general and administrative 3,248 3,822 Interest income (18 ) (131 ) Interest expense 1 1 Total other expenses and income 3,231 3,692 Income before income taxes 5,047 8,526 Provision for income taxes 1,529 2,842 Net income 3,518 5,684 Retained earnings at beginning of period 53,966 37,216 Dividends (197 ) (151 ) Effect of adoption of measurement date provisions of Statement of Financial Accounting Standards No. 158 - 37 Retained earnings at end of period $ 57,287 $ 42,786 Per share data: Basic: Net income $ .36 $ .56 Diluted: Net income $ .35 $ .56 Weighted average common shares outstanding: Basic 9,885 10,085 Diluted 9,915 10,204 Dividends declared per share $ .02 $ .015 -------------------------------------------------------------------------------
Graham Corporation First Quarter Fiscal 2010 Consolidated Balance Sheets (Amounts in thousands, except per share data) Unaudited) June 30, March 31, 2009 2009 Assets Current assets: Cash and cash equivalents $ 3,197 $ 5,150 Investments 42,064 41,059 Trade accounts receivable, net of allowances ($37 and $39 atJune 30 and March 31, 2009, respectively) 16,117 6,995 Unbilled revenue 5,078 10,444 Inventories 4,147 4,665 Income taxes receivable 2,642 4,054 Prepaid expenses and other current assets 613 375 Total current assets 73,858 72,742 Property, plant and equipment, net 9,474 9,645 Deferred income tax asset 154 224 Prepaid pension asset 4,361 4,300 Other assets 10 13 Total assets $ 87,857 $ 86,924 Liabilities and Stockholders' Equity Current liabilities: Current portion of capital lease obligations $ 29 $ 28 Accounts payable 5,937 5,514 Accrued compensation 2,942 4,630 Accrued expenses and other liabilities 1,969 2,266 Customer deposits 5,002 5,892 Deferred income tax liability 4,949 4,865 Total current liabilities 20,828 23,195 Capital lease obligations 24 31 Accrued compensation 263 250 Deferred income tax liability 1,210 1,253 Accrued pension liability 253 256 Accrued postretirement benefits 831 828 Total liabilities 23,409 25,813 Commitments and Contingencies Stockholders' equity: Preferred stock, $1.00 par value Authorized, 500 shares Common stock, $.10 par value Authorized, 25,500 shares Issued, 10,150 and 10,127 shares at June 30 and March31, 2009, respectively 1,015 1,013 Capital in excess of par value 15,055 14,923 Retained earnings 57,287 53,966 Accumulated other comprehensive loss (6,351 ) (6,460 ) Treasury stock (305 and 279 shares at June 30 andMarch 31, 2009, respectively) (2,554 ) (2,325 ) Notes receivable (4 ) (6 ) Total stockholders' equity 64,448 61,111 Total liabilities and stockholders' equity $ 87,857 $ 86,924 -------------------------------------------------------------------------------
Graham Corporation First Quarter Fiscal 2010 Condensed Consolidated Statements of Cash Flows (Dollar amounts in thousands) (Unaudited) Three Months Ended June 30, 2009 2008 Operating activities: Net income $ 3,518 $ 5,684 Adjustments to reconcile net income to net cash (used) provided byoperating activities: Depreciation and amortization 420 267 Discount accretion on investments (17 ) (126 ) Stock-based compensation expense 78 91 Gain on disposal or sale of property, plant and equipment (3 ) - Deferred income taxes 51 30 (Increase) decrease in operating assets: Accounts receivable (9,123 ) (4,659 ) Unbilled revenue 5,368 2,522 Inventories 518 (74 ) Income taxes receivable/payable 1,412 1,744 Prepaid expenses and other current and non-current assets (238 ) (51 ) Prepaid pension asset (61 ) (37 ) Increase (decrease) in operating liabilities: Accounts payable 421 591 Accrued compensation, accrued expenses and other current and non-current liabilities (1,985 ) (1,137 ) Customer deposits (890 ) 2,003 Long-term portion of accrued compensation, accrued pensionliability and accrued postretirement benefits 13 25 Net cash (used) provided by operating activities (518 ) 6,873 Investing activities: Purchase of property, plant and equipment (80 ) (219 ) Proceeds from disposal of property, plant and equipment 7 - Purchase of investments (36,558 ) (35,700 ) Redemption of investments at maturity 35,570 29,750 Net cash used by investing activities (1,061 ) (6,169 ) Financing activities: Proceeds from issuance of long-term debt 198 - Principal repayments on long-term debt (204 ) (6 ) Issuance of common stock 34 393 Dividends paid (197 ) (151 ) Purchase of treasury stock (229 ) (14 ) Excess tax deduction on stock awards 21 1,040 Other 2 1 Net cash (used) provided by financing activities (375 ) 1,263 Effect of exchange rate changes on cash 1 143 Net (decrease) increase in cash and cash equivalents (1,953 ) 2,110 Cash and cash equivalents at beginning of period 5,150 2,112 Cash and cash equivalents at end of period $ 3,197 $ 4,222 -------------------------------------------------------------------------------
Graham Corporation First Quarter Fiscal 2010 Additional Information ORDER AND BACKLOG TREND ($, in millions) Q109 Q209 Q309 Q409 FY2009 Q110 6/30/08 9/30/08 12/31/08 3/31/09 3/31/09 6/30/09 Orders $ 27.8 $ 17.5 $ 8.1 $ 20.5 $ 73.9 $ 8.8 Backlog $ 76.0 $ 69.7 $ 52.5 $ 48.3 $ 48.3 $ 37.0 -------------------------------------------------------------------------------
SALES BY INDUSTRY ($, in millions) Q109 % Q209 % Q309 % Q409 % FY2009 % Q110 % 6/30/08 Total 9/30/08 Total 12/31/08 Total 3/31/09 Total 3/31/09 Total 6/30/09 Total Refining $ 14.4 52 % $ 11.1 47 % $ 11.3 46 % $ 9.3 37 % $ 46.0 46 % $ 9.2 46 % Chem/ Petrochemical $ 5.3 19 % $ 6.4 27 % $ 6.6 27 % $ 8.7 35 % $ 27.0 27 % $ 4.7 24 % Power $ 1.3 5 % $ 2.0 8 % $ 1.5 6 % $ 0.6 3 % $ 5.5 5 % $ 0.1 N/A Other $ 6.6 24 % $ 4.4 18 % $ 5.3 21 % $ 6.2 25 % $ 22.6 22 % $ 6.1 30 % Total $ 27.6 $ 23.9 $ 24.7 $ 24.8 $ 101.1 $ 20.1 -------------------------------------------------------------------------------
SALES BY REGION ($, in millions) Q109 % Q209 % Q309 % Q409 % FY2009 % Q110 % 6/30/08 Total 9/30/08 Total 12/31/08 Total 3/31/09 Total 3/31/09 Total 6/30/09 Total United States $ 18.6 67 % $ 15.0 63 % $ 14.4 58 % $ 15.8 64 % $ 63.7 63 % $ 10.2 51 % Middle East $ 2.0 7 % $ 3.0 13 % $ 2.8 11 % $ 0.6 2 % $ 8.4 8 % $ 0.4 2 % Asia $ 3.0 11 % $ 1.0 4 % $ 3.7 15 % $ 5.5 22 % $ 13.3 13 % $ 8.2 41 % Other $ 4.0 15 % $ 4.9 20 % $ 3.8 16 % $ 2.9 12 % $ 15.7 16 % $ 1.3 6 % Total $ 27.6 $ 23.9 $ 24.7 $ 24.8 $ 101.1 $ 20.1 -------------------------------------------------------------------------------
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