Graham Corp.'s fourth-quarter profits plunged 84 percent as the Batavia manufacturer's sales dropped because of weakness in its key power and oil refining markets, along with a delay in production on a major U.S. Navy contract.
Graham executives said the 22 percent slump in sales reflects the slowdown in the flow of new orders the company experienced a year to 18 months ago -- a trend that has since reversed but has yet to translate into higher revenues.
James R. Lines, Graham's president and chief executive officer, said he expects Graham's sales and profits to remain weak through September, before rebounding during the fall and winter as the recent upswing in new orders begins moving into production.
"We expect that the first half of fiscal 2013 (which runs from April to September) will mirror the last half fo fiscal 2012," which goes from October through March 2013, he said Friday.
"As we move into the latter half of the year (we believe) that the strength of the orders we have seen recently will be demonstrated in sales growth and operating leverage," Lines said.
Graham, which makes vacuum and heat transfer equipment, said its profits tumbled to $429,000 or 4 cents per share, during the fourth quarter, compared with $2.7 million, or 27 cents per share, a year ago.
The earnings were worse than the 6 cents that analysts expected, and also were hurt by an additional $433,000, or 4 cents per share, in taxes stemming from an IRS audit that found the company claimed too much in research and development tax credits from 1999 through 2008. The company will take a $37,000 charge during the current quarter to settle the R&D tax credit claims on its 2009 and 2010 returns, said Jeffrey Glajch, Graham's chief financial officer, during a conference call.
The company's sales dropped to $20.3 million during the quarter that ended in March from $25.9 million a year earlier.
But Lines said he was encouraged by the rebound in the company's order flow, with new bookings jumping by 58 percent in the fourth quarter to $42.3 million -- Graham's second highest ever. "We're seeing larger orders and more of them," Lines said.
The company's $94.9 million order backlog at the end of March is 4 percent higher than it was a year ago and an all-time high.
"I believe that our pipeline is solid and that bid activity is robust," Lines said. "It appears our customers are more ready to release orders."
As a result, Graham forecast that its sales during the current fiscal year will rise by about 7 percent, to between $105 million and $115 million, up from $103.2 million during the last fiscal year, although the profitability of that work could be slightly weaker than last year. The impact of the production delays in the $25 million Navy contract are likely to be felt throughout the year, Lines said.