Graham Corp (GHM) filed Quarterly Report for the period ended 2009-09-30.
With world-renowned engineering expertise in vacuum and heat transfer technology Graham Corporation is a designer manufacturer and global supplier of ejectors pumps condensers vacuum systems and heat exchangers. Graham Corporation had built a reputation for top quality reliable products and high-standards of customer service. Sold either as components or complete system solutions the principle markets for Graham's equipment are the petrochemical oil refining and electric power generation industries including cogeneration and geothermal plants. Graham equipment can be found in diverse applications such as metal refining pulp and paper processing ship-building water heating refrigeration desalination food processing drugs 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 Corp has a market cap of $146.1 million; its shares were traded at around $14.84 with a P/E ratio of 11.8 and P/S ratio of 1.4. The dividend yield of Graham Corp stocks is 0.5%.
Highlight of Business Operations:
Emerging markets require petroleum-based products. These markets are expected to continue to grow at rates faster than the U.S. Therefore, we expect international opportunities will be more plentiful relative to domestic projects. Our domestic sales as a percentage of aggregate product sales increased over the past three fiscal years from 50% in fiscal 2007 to 54% in fiscal 2008 to 63% in fiscal 2009. The economic strength of the U.S., especially the U.S. refining market, drove this trend. As we look at fiscal 2010 and beyond, we believe this trend will reverse itself and international sales over the next few years could surpass domestic sales as early as fiscal 2010. For the second quarter and first six months of fiscal 2010, domestic sales had decreased to 50% and 51%, respectively. Our order rates are confirming a higher weighting toward international opportunities. International orders for the first six months of fiscal 2010 were 74% of total orders.
Sales for the second quarter of fiscal 2010 were $16,108, a 33% decrease as compared with sales of $23,915 for the second quarter of fiscal 2009. The decrease in the current quarter’s sales was due to lower sales in all product lines except for condensers. International sales accounted for 50% and 37% of total sales for the second quarter of fiscal 2010 and fiscal 2009, respectively. International sales year-over-year decreased $959, or 11%. International sales decreased in all markets, except Asia, which increased $2,940, or 283%. The markets with the largest dollar decrease were Canada, off $1,786 and Western Europe, off $1,322. Domestic sales decreased $6,848, or 46% in the second quarter of fiscal 2010 compared with the second quarter of fiscal 2009. Fluctuations in sales among products and geographic locations can vary measurably from quarter-to-quarter based on timing and magnitude of projects. We believe the shift back toward a higher international sales mix will continue in fiscal 2010. Sales in the second quarter of fiscal 2010 were 44% to the refining industry, 33% to the chemical and petrochemical industries and 23% to other industrial applications, including electrical power. Sales in the second quarter of fiscal 2009 were 47% to the refining industry, 27% to the chemical and petrochemical industries and 26% to other industrial applications, including electrical power.
Sales for the first six months of fiscal 2010 were $36,246, a 30% decrease as compared with sales of $51,562 for the first six months of fiscal 2009. The decrease in the year-to-date sales was due to lower sales in all product lines except for condensers. International sales accounted for 49% and 35% of total sales for the first six months of fiscal 2010 and fiscal 2009, respectively. International sales year-over-year decreased $128, or 1%. International sales decreased in all markets, except Asia, which increased $8,119, or 202%. The markets with the largest dollar decrease were Canada, off $3,393, Middle East, off $1,751, Western Europe, off $1,637 and South America, off $1,037. Domestic sales decreased $15,188, or 45% in the six months ending September 30, 2010 compared with the six months ending September 30, 2009. Sales in the first six months of fiscal 2010 were 45% to the refining industry, 28% to the chemical and petrochemical industries and 27% to other industrial applications, including electrical power. Sales in the first six months of fiscal 2009 were 50% to the refining industry, 23% to the chemical and petrochemical industries and 27% to other industrial applications, including electrical power. For additional information on future sales and our markets, see “Orders and Backlog” below.
Selling, general and administrative (“SG&A”) expense as a percent of sales for the three and six-month periods ended September 30, 2009 was 19% and 17%, respectively. This compared with 16% and 15%, respectively, for the same periods ending September 30, 2008. Actual costs in the three and six-month periods ending September 30, 2009 decreased $899, or 23% and $1,473, or 19%, respectively, compared with the same periods of the prior year. Lower SG&A expense reflected the restructuring which occurred in the fourth quarter of fiscal 2009 as well as lower variable costs (e.g., sales commissions and variable compensation) related to lower sales and income.
Orders for the three and six-month periods ended September 30, 2009 were $29,567 and $38,405, respectively, compared with $17,451 and $45,251 for the same periods in the prior fiscal year. Orders represent communications received from customers requesting us to supply products and services. During the second quarter of fiscal 2010, compared to the second quarter of fiscal 2009, we experienced an increase in refining orders of $13,518, or 177%, primarily driven by a large refinery order in Saudi Arabia. Orders for all other markets combined decreased $1,402, or 14%. Orders for the first six months of fiscal 2010 increased in the refining market by $4,036, or 21%. Orders decreased $4,132, or 34% in petrochemical markets and $6,750, or 49% in other industrial or commercial applications, including electrical power.
Backlog was $50,469 at September 30, 2009, compared with $37,045 at June 30, 2009, a 36% increase. Backlog is defined as the total dollar value of orders received for which revenue has not yet been recognized. All orders in backlog represent orders from our traditional markets in established product lines. We believe 65% of our current backlog will convert to sales in the next 12 months. Normally, 85-90% of orders in backlog are expected to be converted to sales within the subsequent twelve-month period. The large Saudi Arabia refinery order we received in the current quarter is not expected to begin to convert to sales until the middle our fiscal year ending March 31, 2011 (“fiscal 2011”), which is the primary cause for such deviation from our historical backlog conversion. At September 30, 2009, approximately 55% of our backlog was attributable to equipment for refinery project work, 33% to chemical and petrochemical projects, and 12% to other industrial or commercial applications, including electrical power. At September 30, 2008,
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