Graham stock takes hit on forecast of near-term decline in orders

Nov 05, 2008 (The Buffalo News - McClatchy-Tribune Information Services via COMTEX) -- GHM | Quote | Chart | News | PowerRating -- The troubles in the financial market and the plunge in energy prices are taking a toll on Graham Corp.'s sales and orders, but company executives said Tuesday they don't think the slowdown will last long.

Investors, however, had a more bearish view, focusing on the company's slowing sales growth and flat profits during the second quarter and causing Graham's stock to plunge by 27 percent, or $5.70, to $15.25.

"The long-term outlook remains unchanged," said James

R. Lines, Graham's president and chief executive officer. "We believe the energy markets will be robust in the long term, but will show a pullback in the short term."

That trend was apparent during the second quarter, when the Batavia manufacturer's previously strong sales growth slowed to 4 percent as energy prices dropped and the financial crisis caused some of Graham's customers to put off placing big orders.

"We have seen a slowing, or a hesitation, by our customers to commit to new orders," Lines said.

As a result, the company, while sticking to its earlier forecast that sales would rise 15 percent to 20 percent this year, warned that revenues during the fiscal year that ends in March are likely to come in at the low end of that range.

Because of the upheaval in the energy and credit markets, which have made it difficult for independent refinery operators to borrow the money needed for expansion or upgrade projects, Graham's new order bookings fell by 15 percent in the summer quarter. Lines said he also expects orders to be "light" during the final three months of the year.

Still, Lines said Graham's customers continue to work on new projects and noted that the company still has ample opportunities to bid on future work.

"It is too early to comment on fiscal 2010, other than to say that we are seeing a slowdown in new orders," while bidding activity remains robust, Lines said.

Lines said he still believes the longer-term outlook for Graham remains strong because of the need to expand refinery capacity and upgrade others to handle lower grades of crude oil.

The company's profits fell less than 1 percent to $4.41 million, or 43 cents per share, from $4.42 million, or 44 cents per share, a year earlier. Sales rose 4 percent to $23.9 million during the quarter that ended in September, compared with $23.1 million a year earlier.

With nearly $43 million in cash on its books and virtually no debt, Lines said he sees the ongoing economic upheaval as creating an opportunity for Graham to use its solid financial position to make acquisitions, although asking prices remain high.

Graham is interested in deals that would be less than $100 million in size and broaden the company's line of custom- engineered products for the energy industry, ranging from refinery projects to the renewable energy field. The company also is interested in deals that would expand the company's geographic footprint, he said.

drobinson@buffnews.com

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