Graham high on oil boom
Expects to continue breaking sales records
BATAVIA — Graham Corp. Chief Executive James R. Lines couldn’t have picked a better time to stand before the Batavia manufacturer’s shareholders on Thursday.
With the manufacturer of condensers and ejector systems riding the energy boom, Graham is coming off a fiscal year where profits and sales were the highest ever by a wide margin. The company’s stock, which traded for just over $10 in January 2007, now stands at $89.
And Graham’s order backlog and new order bookings are running at a record pace, prompting Lines to predict that the company’s growth spurt is far from over, with sales expected to rise by another 15 percent to 20 percent during the fiscal year that began in March. That would push revenues to around $100 million for the first time ever.
“That’s laid a great foundation for additional growth carrying us into 2009,” Lines said. “The company is becoming stronger and more efficient.”
Behind the buoyant times at Graham is the soaring price of oil and natural gas, which is prompting a strong wave of upgrades at refineries worldwide to both expand their capacity and allow them to process higher-sulfur grades of crude oil.
In addition, construction of new refineries is expected to steadily increase over the next seven years, fueling further demand for the condensers and ejector systems that Graham makes for those facilities. Beyond that, demand also is strong from the petrochemical industry, which also are prime customers for Graham’s products.
In the energy industry alone, new refineries could boost the demand for Graham’s products by a total of $160 million to $300 million by 2015, on top of the steady sales the company has been generating from upgrade work at existing distillation plants, Lines said.
The high energy prices, which are spurring a wave of investment in alternative energy projects, such as extracting crude from oil sands in western Canada, could bring in another $100 million to $150 million in new demand for Graham’s products.
“We believe the current expansion cycle will be elongated,” with much of the growth centered in India, Asia and the Middle East, Lines said.
To meet the rising demand, Graham has been adding steadily to its 285-person work force, which includes seven employees at the office it opened in China less than two years ago. The company has been investing in new technology and other systems to improve productivity and increase the capacity of its Batavia plant.
Those efforts already have increased the capacity of its local plant thinks that can grow by another 20 percent to 30 percent. To further meet the demand for its products, Graham has been using subcontractors for up to 15 percent of its production hours — a move that slightly reduces profitability but gives the company more flexibility in managing its work force, while avoiding additional fixed costs.
With ample work available, Graham also has become pickier about the projects it will tackle, especially after being stung by a string of lower-margin work two years ago that also stretched its capacity.
As a result, Graham was vastly more profitable last year, earning almost 40 cents in gross profit for every $1 in sales, well above the 24 cents to 27 cents it typically earned on the dollar, said Ronald Hansen, who retired today as Graham’s chief financial officer. Lines said he believes Graham can continue to operate at the higher profit margins it generated last year.
The company is scheduled to release its second-quarter earnings today.
With about $35 million in cash and short-term investments on hand, plus virtually no long-term debt on its books, Graham is interested in making acquisitions to further bolster its sales and manufacturing capabilities, Lines said.
But just as the energy boom has pushed Graham’s stock to record heights, the price of potential purchases also have shot up.
“We’re being patient,” Lines said. “We’re waiting for the right opportunity.”
