Graham Corp. (GHM)
F4Q10 Earnings Call
May 21, 2010 11:00 am ET
Deborah Pawlowski – Kei Advisors
Jim Lines – President and CEO
Jeff Glajch – VP, Finance & Administration and CFO
George Walsh – Gilford Securities
Chris McCampbell – Stifel Nicolaus
Dick Ryan – Dougherty
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Welcome to the Graham Corporation fourth quarter 2010 quarterly results conference call. (Operator instructions) As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Ms. Deborah Pawlowski, Investor Relations for Graham Corporation. Thank you, Ms. Pawlowski. You may begin.
Thank you, and good morning, everyone. We appreciate your joining us today on Graham’s fiscal 2010 fourth quarter financial results call.
On the call with me today are Jim Lines, President and CEO of Graham and Jeff Glajch, Chief Financial Officer. Jim will briefly review the fourth quarter’s performance and will discuss the Company’s strategy and the outlook as well as his perspective on the state of the industry’s we serve, while Jeff will be reviewing the Company’s performance in the recent quarter and full fiscal year.
You should have a copy of the earnings release that was put out this morning, and if not, you can access at its Company’s website which is www.graham-mfg.com. In addition, we have posted supplemental slides on the website to provide a visual overview of our results.
As you are aware, we may make some forward-looking statements during the formal discussion as well as during the Q&A. These statements apply to future events and are subject to risks and uncertainties as well as other factors that could cause actual results to differ from what was stated here today. These risks and uncertainties and other factors are provided in the earnings release as well as other documents filed by the Company with the Securities and Exchange Commission. These documents can be found both at the Company’s Web site and at www.sec.gov.
So with that let me turn it over to Jim to begin the discussion.
Thank you, Debbie, and good morning everyone. The fourth quarter closed a challenging and remarkable year. Challenging and dealing with the effect of the global financial crisis that led to a rapid collapse in our markets that we saw in our order book in fiscal 2009 that played itself out through our record decline in fiscal 2010.
On the other hand, the year was remarkable in many positive ways. We demonstrated the company could not only outperform during periods of strong demand, but also deliver solid financial results in a steep downturn. The attention we provide to our customers is a critical component for our success as we set a new record for orders in the year. Our company-wide commitment to improving Graham each day drove tangible gains in operational excellence, safety and error reduction that ultimately was reflected in our ability to protect margin despite significantly lower revenue.
This market downturn has been particularly sharp and I am pleased with how our managers and employees have navigated the company through this period. We aren’t completely through the downturn and still have a couple of quarters to contend with. We believe the concluded fourth quarter and the next two quarters should represent the bottom of the cycle for us.
During the fourth quarter we had a good level of bookings considering market conditions. Bookings were $18.3 million. Notable orders in the quarter were a large order for South American crude oil refining project, two orders for geothermal power generation; one for Africa and the other for a U.S. installation, a $5 million for an ethylene producing facility in Asia. While market conditions appear to be improving we expect quarterly order levels to remain erratic and unpredictable.
Although as you can see from these orders the drivers of demand for our products as we move forward as we have discussed before will be emerging economies in Asia, the Middle East and South America for oil refining and petrochemical applications. We expect the North American market will not pick up any time soon. Specifically, from U.S. oil refining and Canadian oil sands markets.
However, we are noticing a pickup in bidding activity for U.S. alternative energy projects such as biomass to energy, municipal waste energy and geothermal power generation. The margin potential can be quite a bit lower for these projects and we are facing different competitors from those in the traditional refining and petrochemical markets.
Our near-term view remains positive based on the activity in the pipeline. Our sales and engineering team is busy developing proposals for early stage project work that could materialize into orders of several quarters out. While order levels will vary greatly by quarter we are expecting backlog to expand by year-end based on planned 5-15% year-over-year sales growth.
Sales in the quarter were $13.8 million and were in line with our expectations. Gross and operating margin were 31% and 8.6% respectively with a level of factory utilization and the amount of subcontracting in the quarter I am quite pleased with our profitability. There was exceptionally strong cash flow from operations for the fourth quarter and consequently for the full-year. $17.5 million in cash from operations was generated in the fourth quarter and $30.3 million for the full-year. Both were driven principally by unusually strong customer deposits that will translate into purchases of materials in fiscal 2011. Jeff will elaborate in greater detail on this.