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Graham’s profits plunge 68% as project delays hurt sales

Softening oil and chemical markets, combined with engineering changes that slowed work on some projects, caused Graham Corp.’s third-quarter profits to tumble by 68 percent and prompted the Batavia manufacturer to lower its sales forecast for the current fiscal year.

James R. Lines, Graham’s president and CEO, said the engineering changes in some of its projects pushed some work that it expected to do late last year into 2016, which hurt the company’s sales and profitability.

“We believe this was isolated to the third quarter,” Lines said Friday. “The decline in sales during the third quarter represents delayed revenue, and is not the result of cancelled orders.”

But Lines said Graham is unlikely to make up for all of the delayed work during the current quarter, prompting it to lower its sales forecast for the fiscal year that ends in March to between $90 million and $95 million, down from its previous projection of $95 million to $105 million.

Graham’s shares fell 3 cents to $17.05 in late morning trading.

Graham’s profits during the final three months of last year fell to $1.3 million, or 13 cents per share, from $4 million, or 39 cents per share, a year ago. The earnings were 2 cents better than analysts expected.

All of the company’s profits during the quarter came from $1.3 million in cancellation fees that Graham received from settlements it negotiated with customers who scrapped projects that had been under contract. Without those cancellation fees, Graham would have broken even during the quarter.

The company’s sales fell by 49 percent to $17.3 million during the quarter that ended in December, down from $33.6 million a year ago.

Lines said Graham’s third-quarter sales already were likely to be weak because of soft oil and petrochemical bookings late last year, when oil prices began dropping. When engineering delays on two large naval and petrochemical projects pushed that work into this year, it left the company with too little work, which hurt profitability.

But Graham continues to book new business. The company brought in $22.3 million in new orders during the quarter, which is about the same as it booked a year ago, excluding orders worth $3.3 million that have been canceled. Its backlog of orders was $113.2 million at the end of December, up from $108.1 million at the end of September and down slightly from $113.8 million at the end of March.

“Although we continue to experience uncertainty in the oil refining and chemical markets, we remain confident in our strategy to grow,” partly because of the company’s work in the nuclear power and U.S. naval markets, Lines said.

“It is challenging,” Lines said during a conference call. “There is a scarcity of orders and those that are available are hotly pursued.”

Graham also said it is increasing its dividend by 13 percent. Graham said it is raising its quarterly dividend by a penny to 9 cents per share. The increased dividend will be payable on Feb. 25 to stockholders of record on Feb. 11.