Industry
Graham Corporation Reports 252% Increase in Net Income on 55% Growth in Sales for Second Quarter Fiscal Year 2006
Auteur : Businesswire
Du : 01/11/2005
Graham Corporation (AMEX: GHM), a designer, manufacturer, and global supplier of ejectors, pumps, condensers, vacuum systems and heat exchangers for the oil refining, petrochemical and power generation industries, today reported results for its secon
Gross margin for the second quarter was 33%, up from 10.5% in the second quarter of the previous fiscal year and 28.4% in the first quarter of this fiscal year. Due to the continued high demand for condenser and ejector systems, particularly in Canada, Asia and the Middle East, higher sales volume of engineered systems and improved selling prices had a positive impact on gross margin.
William C. Johnson, President and CEO of Graham Corporation commented, "The sales potential for our condenser and ejector systems is significant and reflects expansions and facility enhancements in oil refineries and petrochemical production plants worldwide. Based on industry-wide backlog trends of engineering and procurement contractors, which manage refinery and petrochemical projects, as well as industry growth expectations indicated by the record number of shipyard orders for large crude oil and other oceanic vessels, we anticipate market demand could be sustained for several years. Based on our review of industry publications, we believe that there are over 100 global refinery and petrochemical projects planned for development over the next five years."
Net sales in the second quarter were approximately 51% to oil refinery projects, 16% to chemical and petrochemical projects and 15% to power projects. The remaining 18% of net sales were for other industrial or commercial applications. Approximately 10% of net sales were from the sale of Graham's heat exchanger products which include the Heliflow(R), MicroMix and plate-type heat exchangers that are sold primarily through distributors and independent representatives. International sales in the second quarter were 50% of total sales. Exports to Canada, Asia and the Middle East were up 47% over the same period last year.
For the three months ended September 30, 2005, selling, general and administrative expenditures increased 32%, or $621 thousand, compared with the same period last year. Included in the increase were approximately $475 thousand in consulting fees associated with strategic planning and operational restructuring, costs for the implementation of section 404 of the Sarbanes Oxley Act, and the addition of sales personnel in Europe and China. Operating margin improved to 14.8% from 6.8% in the second quarter of the prior fiscal year and 9.2% in the first quarter of fiscal year 2006.
"Operationally, our margins have expanded early in our cycle to historical levels. Most of this improvement resulted from a combination of volume and pricing. We are also investing heavily in our technology infrastructure to increase engineering and production efficiencies and capacity to continue providing the timely, quality service our customers expect, even during this very strong demand cycle. We could see cost challenges with rising energy and material costs which may impact gross margins if we are not able to pass these on to the market. Nonetheless, we believe our highly skilled personnel coupled with automated processes provide a competitive advantage that will enable us to maintain our command of the vacuum systems market in the oil refinery and petrochemical industries." Mr. Johnson added.
Net cash generated by operating activities was $1.87 million for the three months ended September 30, 2005, and $7.7 million for the first six months of fiscal year 2006, compared with net cash used by continuing operations of $1.8 million during the first six months last fiscal year. Higher profits and a reduction in working capital, due to reduced inventories and accounts receivable and increased customer deposits, contributed to this increase.
Capital expenditures for the quarter were $399 thousand compared with $13 thousand in the second quarter last year. Total capital expenditures of $2 million are expected for fiscal year 2006 for continued lean manufacturing initiatives, information technology and engineering software enhancements. Approximately $434 thousand of additional capital has been committed as of the end of the quarter.
On July 28, 2005, Graham's Board of Directors declared a two-for-one stock split of the common shares. The two-for-one stock split was effected as a stock dividend, and stockholders received one additional share of common stock for every share of common stock held on the record date of September 1, 2005. The new common shares were distributed on October 3, 2005.
Six-Month Review
Net sales for the first half of fiscal 2006 were $25.8 million, up 48% from net sales of $17.4 million for the first half of fiscal 2005. Gross margins for the six-month periods ended September 30, 2005 and 2004 were 31% and 10%, respectively. Net income and diluted earnings per share for the first half of fiscal 2006 were $2.1 million and $0.56, respectively. This represents an increase of $2.6 million and $0.74 per share over the net loss for the first half of the prior fiscal year.
Outlook
Orders received in the second quarter of fiscal 2006 were $12.8 million compared with $9.1 million in the second quarter of fiscal 2005, a 41% increase. Export orders increased 88% when compared with the same quarter last year, while domestic orders were up 22%. Of the orders received in the second fiscal quarter, approximately 47% were for refinery projects, 27% were associated with chemical and petrochemical facilities, 6% were power related, and 20% were for other industrial and commercial applications. Orders received in the first six months of fiscal 2006 were $33.3 million, a 47% increase over orders received during the first half of fiscal 2005.
Due to the timing of the release of orders by customers, the trend of bookings from quarter-to-quarter is not reflective of the future sales potential for Graham. Rather, Graham believes that a six to 12-month perspective of orders received provides a better indication of demand trends.
As of September 30, 2005, backlog was $30.0 million compared with $18.9 million at September 30, 2004, a 59% increase. Approximately 41% of the backlog can be attributed to equipment for refinery work, 33% to chemical and petrochemical projects, 14% to power generation projects and 12% to a variety of other industrial and commercial applications.
Mr. Johnson added, "Our strategy for growth is to maximize the opportunities of the current cycle and to increase our market share in the Asian and Middle East regions. We believe our core competence is in our ability to engineer vacuum systems and see the potential to expand this expertise in Asia. The growth of Asia and the Middle East regions provide excellent opportunities for Graham."
Graham also reaffirms its prior guidance that anticipated sales in Fiscal Year 2006 are expected to be in the range of $55 to $60 million.
Webcast and Conference Call
Graham's senior management team will host a conference call and webcast on November 1, 2005 at 10:00 a.m. eastern time to discuss Graham's second quarter performance. The webcast can be accessed at www.graham-mfg.com. Participants should go to the website approximately 10 to 15 minutes prior to the scheduled conference in order to register and download any necessary audio software. The teleconference can be accessed by calling (877) 407-9039 approximately 5 to 10 minutes prior to the call.
Gross margin for the second quarter was 33%, up from 10.5% in the second quarter of the previous fiscal year and 28.4% in the first quarter of this fiscal year. Due to the continued high demand for condenser and ejector systems, particularly in Canada, Asia and the Middle East, higher sales volume of engineered systems and improved selling prices had a positive impact on gross margin.
William C. Johnson, President and CEO of Graham Corporation commented, "The sales potential for our condenser and ejector systems is significant and reflects expansions and facility enhancements in oil refineries and petrochemical production plants worldwide. Based on industry-wide backlog trends of engineering and procurement contractors, which manage refinery and petrochemical projects, as well as industry growth expectations indicated by the record number of shipyard orders for large crude oil and other oceanic vessels, we anticipate market demand could be sustained for several years. Based on our review of industry publications, we believe that there are over 100 global refinery and petrochemical projects planned for development over the next five years."
Net sales in the second quarter were approximately 51% to oil refinery projects, 16% to chemical and petrochemical projects and 15% to power projects. The remaining 18% of net sales were for other industrial or commercial applications. Approximately 10% of net sales were from the sale of Graham's heat exchanger products which include the Heliflow(R), MicroMix and plate-type heat exchangers that are sold primarily through distributors and independent representatives. International sales in the second quarter were 50% of total sales. Exports to Canada, Asia and the Middle East were up 47% over the same period last year.
For the three months ended September 30, 2005, selling, general and administrative expenditures increased 32%, or $621 thousand, compared with the same period last year. Included in the increase were approximately $475 thousand in consulting fees associated with strategic planning and operational restructuring, costs for the implementation of section 404 of the Sarbanes Oxley Act, and the addition of sales personnel in Europe and China. Operating margin improved to 14.8% from 6.8% in the second quarter of the prior fiscal year and 9.2% in the first quarter of fiscal year 2006.
"Operationally, our margins have expanded early in our cycle to historical levels. Most of this improvement resulted from a combination of volume and pricing. We are also investing heavily in our technology infrastructure to increase engineering and production efficiencies and capacity to continue providing the timely, quality service our customers expect, even during this very strong demand cycle. We could see cost challenges with rising energy and material costs which may impact gross margins if we are not able to pass these on to the market. Nonetheless, we believe our highly skilled personnel coupled with automated processes provide a competitive advantage that will enable us to maintain our command of the vacuum systems market in the oil refinery and petrochemical industries." Mr. Johnson added.
Net cash generated by operating activities was $1.87 million for the three months ended September 30, 2005, and $7.7 million for the first six months of fiscal year 2006, compared with net cash used by continuing operations of $1.8 million during the first six months last fiscal year. Higher profits and a reduction in working capital, due to reduced inventories and accounts receivable and increased customer deposits, contributed to this increase.
Capital expenditures for the quarter were $399 thousand compared with $13 thousand in the second quarter last year. Total capital expenditures of $2 million are expected for fiscal year 2006 for continued lean manufacturing initiatives, information technology and engineering software enhancements. Approximately $434 thousand of additional capital has been committed as of the end of the quarter.
On July 28, 2005, Graham's Board of Directors declared a two-for-one stock split of the common shares. The two-for-one stock split was effected as a stock dividend, and stockholders received one additional share of common stock for every share of common stock held on the record date of September 1, 2005. The new common shares were distributed on October 3, 2005.
Six-Month Review
Net sales for the first half of fiscal 2006 were $25.8 million, up 48% from net sales of $17.4 million for the first half of fiscal 2005. Gross margins for the six-month periods ended September 30, 2005 and 2004 were 31% and 10%, respectively. Net income and diluted earnings per share for the first half of fiscal 2006 were $2.1 million and $0.56, respectively. This represents an increase of $2.6 million and $0.74 per share over the net loss for the first half of the prior fiscal year.
Outlook
Orders received in the second quarter of fiscal 2006 were $12.8 million compared with $9.1 million in the second quarter of fiscal 2005, a 41% increase. Export orders increased 88% when compared with the same quarter last year, while domestic orders were up 22%. Of the orders received in the second fiscal quarter, approximately 47% were for refinery projects, 27% were associated with chemical and petrochemical facilities, 6% were power related, and 20% were for other industrial and commercial applications. Orders received in the first six months of fiscal 2006 were $33.3 million, a 47% increase over orders received during the first half of fiscal 2005.
Due to the timing of the release of orders by customers, the trend of bookings from quarter-to-quarter is not reflective of the future sales potential for Graham. Rather, Graham believes that a six to 12-month perspective of orders received provides a better indication of demand trends.
As of September 30, 2005, backlog was $30.0 million compared with $18.9 million at September 30, 2004, a 59% increase. Approximately 41% of the backlog can be attributed to equipment for refinery work, 33% to chemical and petrochemical projects, 14% to power generation projects and 12% to a variety of other industrial and commercial applications.
Mr. Johnson added, "Our strategy for growth is to maximize the opportunities of the current cycle and to increase our market share in the Asian and Middle East regions. We believe our core competence is in our ability to engineer vacuum systems and see the potential to expand this expertise in Asia. The growth of Asia and the Middle East regions provide excellent opportunities for Graham."
Graham also reaffirms its prior guidance that anticipated sales in Fiscal Year 2006 are expected to be in the range of $55 to $60 million.
Webcast and Conference Call
Graham's senior management team will host a conference call and webcast on November 1, 2005 at 10:00 a.m. eastern time to discuss Graham's second quarter performance. The webcast can be accessed at www.graham-mfg.com. Participants should go to the website approximately 10 to 15 minutes prior to the scheduled conference in order to register and download any necessary audio software. The teleconference can be accessed by calling (877) 407-9039 approximately 5 to 10 minutes prior to the call.