Graham Corp. reports financial results for the quarter ended September 30, 2017.
- Summary numbers: Revenues of USD 17.22 million, Net Earnings of USD 0.01 million.
- Gross margins narrowed from 23.44% to 21.89% compared to the same period last year, operating (EBITDA) margins now 3.98% from 11.44%.
- Change in operating cash flow of -260.21% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
- Narrowing of operating margins contributed to decline in earnings.
The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:
|Relevant Numbers (Quarterly)|
|Revenue Growth (%YOY)||-18.47||-6.77||14.9||30.77||-7.33|
|Earnings Growth (%YOY)||-99.23||1000||246.35||44.43||-34.36|
|Net Margin (%)||0.06||4.48||7.03||8.12||6.14|
|Return on Equity (%)||0.01||0.82||1.6||1.67||1.19|
|Return on Assets (%)||0.03||2.5||4.8||5.02||3.55|
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Market Share Versus Profits
Compared to the same period last year, GHM-US’s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if GHM-US’s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by -17.39% and earnings by -98.93% compared to the previous period.
Earnings Growth Analysis
The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 23.44% to 21.89%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 11.44% to 3.98% in this time frame. For comparison, gross margins were 23.06% and EBITDA margins were 8.34% in the previous period.
Gross Margin Trend
Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.
GHM-US’s decline in gross margins has not produced any significant offsetting improvement in its working capital . This leads Capital Cube to conclude that the decline in gross margins are likely from operating issues and not trade-offs with the balance sheet. Working capital days are currently 417.38 days, compared to last year’s level of 324.81 days.
Cash Versus Earnings – Sustainable Performance?
It is important to examine a companyï¿½s cash versus earnings numbers to gauge whether its performance is sustainable.
GHM-US’s year-on-year change in operating cash flow of -260.21% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.
The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 8.68% to 0.75% and (2) one-time items that contributed to a decrease in pretax margins from 8.71% to -0.15%
Access our Ratings and Scores for Graham Corp.
Graham Corp. designs, manufactures and sells equipment for the energy, defense, chemical and petrochemical industries. It designs custom engineered ejectors, vacuum pumping systems, surface condensers and vacuum systems and supplies components for use inside the reactor vessel and outside the containment vessel of nuclear power facilities. The company’s equipment is used to produce synthetic fibers, chemicals, petroleum products, electric power, processed food, pharmaceutical products, paper, steel and fertilizers. Graham was founded on March 7, 1983 and is headquartered in Batavia, NY.
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