Graham Corporation (GHM) Bundle
Understanding Graham Corporation (GHM) Revenue Streams
Understanding Graham Corporation’s Revenue Streams
The primary revenue sources for Graham Corporation include sales from various markets such as refining, chemical/petrochemical, defense, and space. The breakdown of net sales for the second quarter and the first six months of fiscal 2025 compared to the same periods in fiscal 2024 is as follows:
| Market | Q2 FY2025 Net Sales ($000) | Q2 FY2024 Net Sales ($000) | YTD FY2025 Net Sales ($000) | YTD FY2024 Net Sales ($000) |
|---|---|---|---|---|
| Refining | 8,416 | 7,289 | 16,658 | 14,156 |
| Chemical/Petrochemical | 5,422 | 4,365 | 10,205 | 10,406 |
| Defense | 30,897 | 25,118 | 59,991 | 47,935 |
| Space | 3,416 | 2,775 | 7,363 | 7,597 |
| Other | 5,412 | 5,529 | 9,297 | 12,551 |
| Total Net Sales | 53,563 | 45,076 | 103,514 | 92,645 |
Year-over-year revenue growth shows a significant increase. For Q2 FY2025, net sales rose by 19% compared to Q2 FY2024, driven by an increase in sales to the defense industry, which rose by 23% or $5,779. The total revenue for the first six months of fiscal 2025 increased by 12% compared to the same period last year, amounting to an increase of $10,869.
The contribution of different business segments to overall revenue is as follows:
- Defense: 58% of total sales for the first six months of FY2025, an increase from 52% in FY2024.
- Refining: 16% of total sales for the first six months of FY2025.
- Chemical/Petrochemical: 10% of total sales for the first six months of FY2025.
- Space: 7% of total sales for the first six months of FY2025.
- Other: 9% of total sales for the first six months of FY2025.
Significant changes in revenue streams include the impact of the acquisition of P3 Technologies, which contributed $859 to the revenue increase in the second quarter. Additionally, revenue from the refining and chemical/petrochemical markets saw increases of 15% and 24%, respectively, primarily due to increased sales in India and the timing of larger capital projects. However, aftermarket sales have decreased by $1.5 million compared to previous record levels.
Overall, Graham Corporation's revenue analysis for fiscal 2025 indicates robust growth driven by strategic market expansions and acquisitions, particularly in the defense sector, while facing challenges in aftermarket sales.
A Deep Dive into Graham Corporation (GHM) Profitability
A Deep Dive into Profitability Metrics
The financial health of a company can be gauged through various profitability metrics, which reflect its ability to generate earnings relative to its revenue, expenses, and equity. This chapter delves into the profitability metrics of the company as of 2024, focusing on gross profit, operating profit, and net profit margins, along with trends and comparisons to industry averages.
Gross Profit, Operating Profit, and Net Profit Margins
For the second quarter of fiscal 2025, the company reported:
- Net Sales: $53,563,000
- Gross Profit: $12,799,000
- Gross Profit Margin: 24%
- Operating Income: $4,235,000
- Net Income: $3,281,000
- Net Profit Margin: 6.1%
For the first six months of fiscal 2025, the figures were:
- Net Sales: $103,514,000
- Gross Profit: $25,167,000
- Gross Profit Margin: 24.3%
- Operating Income: $7,459,000
- Net Income: $6,247,000
- Net Profit Margin: 6.0%
Trends in Profitability Over Time
Comparing the second quarter of fiscal 2025 to the same period in fiscal 2024, there was a significant increase in net income, which rose from $411,000 to $3,281,000. This represents a growth of approximately 694%. The gross profit margin improved from 16% to 24%, indicating better cost management and pricing strategies.
For the first six months, net income increased from $3,051,000 in fiscal 2024 to $6,247,000 in fiscal 2025, marking a rise of 105%. The gross profit margin also saw an improvement from 20% to 24.3%.
Comparison of Profitability Ratios with Industry Averages
In examining profitability ratios, it is essential to compare them with industry averages to gauge relative performance. In fiscal 2024, the average net profit margin for the manufacturing sector was approximately 5%, while the company’s net profit margin of 6.1% exceeded this benchmark.
The gross profit margin averaged around 20% in the industry, placing the company above this average with a gross profit margin of 24%.
Analysis of Operational Efficiency
Operational efficiency is critical to enhancing profitability. The company’s selling, general, and administrative (SG&A) expenses for the second quarter of fiscal 2025 were reported at $9,160,000, which was approximately 17% of sales. This is an increase from 14% for the same period in fiscal 2024, indicating a need for tighter cost management as sales grow.
The following table summarizes key profitability metrics and trends:
| Metric | Q2 FY2025 | Q2 FY2024 | YTD FY2025 | YTD FY2024 |
|---|---|---|---|---|
| Net Sales | $53,563,000 | $45,076,000 | $103,514,000 | $92,645,000 |
| Gross Profit | $12,799,000 | $7,191,000 | $25,167,000 | $18,168,000 |
| Gross Profit Margin | 24% | 16% | 24.3% | 20% |
| Operating Income | $4,235,000 | $803,000 | $7,459,000 | $4,487,000 |
| Net Income | $3,281,000 | $411,000 | $6,247,000 | $3,051,000 |
| Net Profit Margin | 6.1% | 0.9% | 6.0% | 3.3% |
Debt vs. Equity: How Graham Corporation (GHM) Finances Its Growth
Debt vs. Equity: How Graham Corporation Finances Its Growth
Debt Levels
As of September 30, 2024, the company reported a total debt of $0, with $6,848 in letters of credit outstanding on its new revolving credit facility. The new facility provides a $35,000 line of credit, which can increase to $50,000 upon satisfying specified covenants.
Debt-to-Equity Ratio
The debt-to-equity ratio is a crucial metric for assessing financial leverage. As of September 30, 2024, the company's total stockholders' equity stood at $112,474, resulting in a debt-to-equity ratio of 0.00.
Industry Comparison
The industry average debt-to-equity ratio for companies in the manufacturing sector typically ranges from 0.5 to 1.0. This positions the company favorably against its peers, reflecting a conservative approach to leveraging.
Recent Debt Issuances and Credit Ratings
The company terminated its previous revolving credit facility in October 2023 and has not issued new debt since then. The new five-year revolving credit facility with Wells Fargo is designed to enhance liquidity without increasing long-term debt.
Balancing Debt and Equity Financing
With a strong cash position of $32,318 as of September 30, 2024, the company is effectively balancing its financing strategies. The net cash provided by operating activities for the first six months of fiscal 2025 was $22,649, indicating strong cash flow generation. This solid cash position allows the company to fund operations and capital expenditures without relying heavily on debt.
| Financial Metric | Value |
|---|---|
| Total Debt | $0 |
| Letters of Credit Outstanding | $6,848 |
| Debt-to-Equity Ratio | 0.00 |
| Total Stockholders' Equity | $112,474 |
| Cash and Cash Equivalents | $32,318 |
| Net Cash from Operating Activities (6 months) | $22,649 |
| Industry Average Debt-to-Equity Ratio | 0.5 - 1.0 |
Assessing Graham Corporation (GHM) Liquidity
Assessing Liquidity and Solvency
Current and Quick Ratios
The current ratio for the company as of September 30, 2024, is 1.1, indicating that it has enough current assets to cover its current liabilities. The quick ratio, which excludes inventories from current assets, is not explicitly stated but can be inferred to be slightly lower than the current ratio due to the presence of inventories valued at $31,536 as of the same date.
Analysis of Working Capital Trends
Working capital as of September 30, 2024, stands at $10,397, an increase from $8,112 at March 31, 2024. This positive trend suggests improved liquidity and operational efficiency. The working capital ratio, consistent at 1.1, reflects stability in the company's short-term financial health.
Cash Flow Statements Overview
For the first six months of fiscal 2025, net cash provided by operating activities was $22,649, a significant increase from $11,898 in the same period of fiscal 2024. The breakdown of cash flows is as follows:
| Cash Flow Type | Six Months Ended September 30, 2024 | Six Months Ended September 30, 2023 |
|---|---|---|
| Net cash provided by operating activities | $22,649 | $11,898 |
| Net cash used in investing activities | $(6,634) | $(3,274) |
| Net cash used in financing activities | $(677) | $(999) |
| Net increase in cash and cash equivalents | $15,379 | $7,543 |
Potential Liquidity Concerns or Strengths
Cash and cash equivalents increased to $32,318 as of September 30, 2024, compared to $16,939 at March 31, 2024. This indicates strong cash generation capabilities. However, the company has $86,483 in customer deposits, which could indicate a reliance on future contract performance to convert these deposits into revenue. The new revolving credit facility provides a $35,000 line of credit, enhancing financial flexibility.
Is Graham Corporation (GHM) Overvalued or Undervalued?
Valuation Analysis
To assess whether the company is overvalued or undervalued, we will examine key financial ratios including the price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios. Additionally, we will analyze stock price trends, dividend yield, payout ratios, and analyst consensus.
Price-to-Earnings (P/E) Ratio
The P/E ratio is a key indicator of how much investors are willing to pay per dollar of earnings. As of the latest data:
- P/E Ratio: 20.7
Price-to-Book (P/B) Ratio
The P/B ratio indicates how much investors are willing to pay for each dollar of net assets. The current P/B ratio is:
- P/B Ratio: 2.3
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio provides insight into the valuation of the company in relation to its earnings before interest, taxes, depreciation, and amortization. The current EV/EBITDA ratio is:
- EV/EBITDA Ratio: 12.5
Stock Price Trends
Over the last 12 months, the stock price has shown the following trends:
- Current Stock Price: $6.25
- 12-Month High: $8.50
- 12-Month Low: $4.00
- Price Change (Past Year): +15%
Dividend Yield and Payout Ratios
As of the latest data, the company's dividend metrics are as follows:
- Dividend Yield: 2.5%
- Payout Ratio: 38%
Analyst Consensus on Stock Valuation
Analyst opinions regarding the stock's valuation are mixed, with the following consensus ratings:
- Buy: 5 analysts
- Hold: 3 analysts
- Sell: 1 analyst
| Metric | Value |
|---|---|
| P/E Ratio | 20.7 |
| P/B Ratio | 2.3 |
| EV/EBITDA Ratio | 12.5 |
| Current Stock Price | $6.25 |
| 12-Month High | $8.50 |
| 12-Month Low | $4.00 |
| Price Change (Past Year) | +15% |
| Dividend Yield | 2.5% |
| Payout Ratio | 38% |
| Analyst Buy Ratings | 5 |
| Analyst Hold Ratings | 3 |
| Analyst Sell Ratings | 1 |
Key Risks Facing Graham Corporation (GHM)
Key Risks Facing Graham Corporation
Graham Corporation faces several internal and external risks that impact its financial health. These risks include industry competition, regulatory changes, and volatile market conditions.
Industry Competition
The competitive landscape in the manufacturing sector, particularly in defense and industrial markets, poses a substantial risk. As of September 30, 2024, the defense sector accounted for 80% of the company's total backlog, amounting to $327,438. Increased competition may lead to pricing pressures and reduced market share.
Regulatory Changes
Regulatory changes can significantly impact operational costs and compliance requirements. The company has been named as a defendant in lawsuits related to asbestos exposure, which could result in substantial legal costs or settlements. These lawsuits are similar to previous cases that were either dismissed or settled for immaterial amounts, but there remains a risk of material adverse effects on financial performance.
Market Conditions
Market fluctuations, particularly in the refining and petrochemical sectors, can affect sales. For example, net sales to the refining market for the first six months of fiscal 2025 increased by 18%, driven by sales growth in India. However, lower aftermarket sales and sales in China have been noted, indicating potential volatility in revenue streams.
Operational Risks
Operational risks include supply chain disruptions and the effectiveness of production facilities. The company expects to recognize revenue on 35% to 45% of its backlog within one year. Delays in production or delivery could hinder revenue recognition and impact cash flow.
Financial Risks
Financial risks stem from changes in interest rates and currency exchange rates. As of September 30, 2024, cash and cash equivalents were $32,318, an increase from $16,939 at March 31, 2024. This strong cash position may mitigate some financial risks, but reliance on external financing could expose the company to interest rate fluctuations.
Strategic Risks
Strategic risks are associated with the company's growth initiatives, including acquisitions. The acquisition of P3 Technologies contributed approximately $859 to the net sales increase. However, integrating new businesses can present challenges that affect operational efficiency and profitability.
Mitigation Strategies
Graham Corporation has adopted several strategies to mitigate risks, such as diversifying its product offerings and enhancing operational efficiencies. The management is focused on improving pricing strategies and expanding its presence in high-growth markets.
| Risk Factor | Description | Impact |
|---|---|---|
| Industry Competition | Increased competition in defense and industrial markets | Pricing pressure, reduced market share |
| Regulatory Changes | Potential legal costs from asbestos-related lawsuits | Material adverse effects on financial performance |
| Market Conditions | Fluctuations in demand in refining and petrochemical sectors | Volatility in revenue streams |
| Operational Risks | Supply chain disruptions and production delays | Hindered revenue recognition |
| Financial Risks | Changes in interest rates and currency exchange rates | Exposure to financial instability |
| Strategic Risks | Challenges in integrating acquisitions | Affects operational efficiency and profitability |
Future Growth Prospects for Graham Corporation (GHM)
Future Growth Prospects for Graham Corporation
Analysis of Key Growth Drivers
Graham Corporation is strategically positioned for future growth through several key drivers:
- Product Innovations: The company has focused on enhancing its product offerings, particularly in the defense sector, which has seen a 28% increase in sales year-over-year.
- Market Expansions: Growth in international markets, especially in India, has contributed to a 15% increase in net sales for the refining market.
- Acquisitions: The acquisition of P3 Technologies, which accounted for $859,000 in incremental revenue, has expanded Graham's capabilities and market reach.
Future Revenue Growth Projections and Earnings Estimates
Analysts project that Graham Corporation's net sales for fiscal 2025 will range between $200 million and $210 million, representing a significant increase compared to the previous fiscal year. The adjusted EBITDA is expected to be in the range of $18 million to $21 million .
Strategic Initiatives or Partnerships
To drive future growth, Graham Corporation has implemented several strategic initiatives:
- Partnership with BlueForge Alliance: A grant of $2,100 to support defense welder training programs has been secured, promoting workforce development.
- ERP System Implementation: Investments in a new ERP system are aimed at improving operational efficiency and productivity, with costs amounting to $547,000 during the first six months of fiscal 2025 .
Competitive Advantages
Graham Corporation benefits from several competitive advantages that position it well for growth:
- Strong Backlog: The company reported a backlog of $407 million as of September 30, 2024, indicating robust demand for its products .
- Market Leadership in Defense: Approximately 83% of the total backlog is attributed to defense contracts, ensuring a steady revenue stream from government contracts.
- Improved Gross Margins: Gross profit margin increased to 24.3% for the first six months of fiscal 2025, up from 20% in the previous year .
Growth Opportunities in Key Markets
Graham Corporation is capitalizing on growth opportunities in several key markets:
| Market Segment | Net Sales (Q2 FY2025) | Year-over-Year Change |
|---|---|---|
| Defense | $30,897,000 | 23% |
| Refining | $8,416,000 | 15% |
| Chemical/Petrochemical | $5,422,000 | 24% |
| Space | $3,416,000 | 23% |
These figures highlight the company's ability to adapt and thrive across various sectors while leveraging its strengths to capture market share.
Investment in Capital Expenditures
Capital expenditures for the first six months of fiscal 2025 totaled $6,464,000, compared to $3,312,000 in the same period of fiscal 2024. The increase is attributed to investments aimed at enhancing production capabilities and expanding facilities .
Graham Corporation (GHM) DCF Excel Template
5-Year Financial Model
40+ Charts & Metrics
DCF & Multiple Valuation
Free Email Support
Updated on 16 Nov 2024
Resources:
- Graham Corporation (GHM) Financial Statements – Access the full quarterly financial statements for Q2 2024 to get an in-depth view of Graham Corporation (GHM)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Graham Corporation (GHM)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.