Sales and operating margins improved substantially from Q2 and Q3. Gross profit doubled from last year. Gross profit margins increased to 34.1 percent from 25.6 percent. Gross profit margins for fiscal year 2013 were 30.3 percent. Graham expects margins to increase to the mid to upper 30 percent as the expansion cycle plays out.
The company has seen a larger than expected increase in demand for aftermarket replacement parts, especially from refineries. Replacement parts have higher margins than original parts. This increase in demand contributed to the company's Q4 profitability.
Bookings overall have been disappointing, but the company has seen "frothy" bid activity, which it hopes will translate into stronger bookings in the future. However, guidance will remain conservative until the bid activity translates into actual orders. Graham has $85.5 million of backlog and expect 75 to 80 percent of it to convert in the next year as a result of an order for the Naval nuclear propulsion program and orders for new U.S. nuclear power plants.
The company is planning to increase profitability by increasing market share and expanding into submarine programs. With regard to submarines, it is working to break into the Virginia-class submarine program and the Ohio class replacement program. It also hopes to reduce earnings volatility by diversifying its customer base and increasing the number of non-cyclical orders.
The company has a strong cash position of $51.7 million and no bank debt. It wants to use its cash position for potential acquisitions.
The full transcript of the earnings conference call can be found on Seeking Alpha at the following link: http://seekingalpha.com/article/1474391-graham-corporation-s-ceo-discusses-f4q-and-full-year-f2013-results-earnings-call-transcript?part=single
Copyright 2013 Jaygo's Earnings Conference Call Summaries
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