Graham Corp. is getting off to a strong start in 2013, and Chief Executive James R. Lines expects the Batavia manufacturer’s business to keep growing for at least a few more years.
“The market is becoming more favorable, and customers are more apt to place orders” than last year, when the hesitancy by some customers to commit to projects kept a lid on Graham’s sales growth during 2012, Lines said Thursday during the Batavia manufacturer’s annual shareholders meeting.
“This business is ready to capitalize on the strong expansion wave we envision in our markets,” he said.
That wave was apparent during the spring, when soaring demand for the equipment it makes for oil refineries helped Graham’s first-quarter profits nearly triple, while its sales jumped by 25 percent.
The company, which makes vacuum and heat transfer equipment that is used in refineries, chemical plants and other industrial projects, said much of the growth during the spring quarter came from a surge in international sales that was fueled by a flurry of new oil refinery projects in China.
Its stock price jumped $1.50, or 4.75 percent, to $33.11 Thursday.
Graham’s profits soared to $3.8 million, or 38 cents per share, during the quarter that ended in June, up from $1.4 million, or 14 cents per share, a year earlier.
The company’s sales improved to $28.3 million from $22.5 million, bolstered by a 34 percent jump in its international revenues, which accounted for 47 percent of Graham’s overall sales during the quarter. The company’s U.S. sales grew by 19 percent.
Much of the sales growth came from the oil refinery market, where new projects in China bolstered international revenues, while the demand for replacement parts and upgrade projects strengthened revenues in the United States.
The stronger sales made Graham’s operations more profitable by spreading its fixed costs over a broader base of revenues. But Graham executives warned that its profitability during the coming quarters could be weaker than the unusually strong first-quarter level because the company expects to outsource more of its increasing workload in the near future.
Even so, Lines said Graham is sticking to its earlier forecast that sales this year will range between $100 million and $115 million, with a gross profit margin in the range of 29 percent to 31 percent. The company’s gross margin during the first quarter topped 35 percent.
Graham regularly has turned to subcontractors, rather than relying on simply expanding its own staff, in recent years to handle spikes in its workload, which can vary widely because its key energy and chemical markets can be volatile.
Graham outsourced about 20 percent of its workload last year and expects subcontractors to handle as much as 25 percent of its work this year, Lines said.
Outsourcing allows Graham to adjust its costs more quickly in response to fluctuations in its workload, but it also reduces its overall profitability, which accounts for the expected weakening in the company’s margins throughout the rest of the fiscal year, Lines said.
Even so, Graham expects to hire another 15 to 20 workers this year at its sites in Batavia and Michigan, Lines said.
The company, which hired 30 new workers last year across its operations, employs about 315 people at its Batavia factory.
Graham’s sales to the refining industry more than doubled to $12.6 million, accounting for 45 percent of the company’s overall sales.
Revenues from its nuclear power equipment business grew by 48 percent to $7.7 million, while its sales to the chemical and petrochemical industry weakened by 18 percent to $4.6 million.
Just as encouraging was the rebound in the flow of new orders, which jumped by 66 percent to $32.8 million, compared with $19.7 million a year ago and just under $26 million during the winter quarter. Lines said he was especially pleased by the $19.3 million in orders it booked from customers in the petrochemical industry, easily topping the $14.8 million in new orders that industry accounted for during the entire 2013 fiscal year.
“We believe we’re going to see strength in our orders going forward, but this is just one quarter,” Lines said, adding that he wanted to see the strength extend throughout the summer before considering an upward revision of its sales forecast.
Graham, which has more than $53 million in cash on its books, also is continuing to hunt for acquisitions that could broaden its product lines in its existing markets. Lines said the company is seeking deals for profitable, well-managed businesses in the $20 million to $60 million range.