Graham Corp.'s fourth-quarter sales will be weaker than forecast because of delays in a major contract from the U.S. Navy to supply nuclear propulsion equipment, while its profits will be slashed by a charge stemming from a federal tax audit.
That delay also will hurt the company's profitability during the quarter that ended in March, eroding its gross profits by roughly $16,000 to $49,000, the company said Tuesday.
Graham also said its profits during the fourth quarter will be cut by $433,000, after taxes, because of a further adjustment to the research and development tax credits the company claimed from 1999 through 2009, following an audit by the Internal Revenue Service.
Graham already had recorded a $426,000 adjustment over the tax credit it has claimed, but the latest charge, equaling 4 cents per share, resulted from the final results of an IRS audit that wrapped up during the winter. In all, the tax credit adjustment wiped out about 40 percent of the $1.87 million in tax credits the company claimed during that nine-year period.
During the fourth quarter, Graham said, its sales are expected to be about $20.3 million, down about 22 percent from $25.9 million a year ago and weaker than the roughly $23.3 million the company had forecast.
James R. Lines, Graham's president and chief executive officer, blamed the lower sales on an extension in the production and delivery schedule for its multiyear deal to supply nuclear propulsion equipment to the Navy.
Because of the lower sales, Graham expects its gross profit margins to weaken during the quarter to around 31.5 percent, compared with the 32 percent to 33 percent it had initially forecast.
Still, Lines said he remains optimistic about the company's business, noting a pair of recent orders worth $5.5 million to supply equipment for oil refinery projects that resulted from its efforts to expand into Chinese markets.
"I believe that we are still in the early stages of the recovery, and the tenor of opportunities in our pipeline has definitely strengthened," he said.
Graham said it booked $42.3 million in orders during the fourth quarter, up 58 percent from $26.8 million a year ago.