Graham(US:GHM)2025-11-07 13:30Financial Performance - Net sales for Q2 fiscal 2026 were $66,027, an increase of $12,464 or 23% compared to Q2 fiscal 2025, with a 32% increase in defense industry sales[70]. - Gross profit for Q2 fiscal 2026 was $14,306, up $1,507 or 12% from Q2 fiscal 2025, but gross profit margin declined by 220 basis points to 21.7%[70]. - Net income for Q2 fiscal 2026 was $3,090, with diluted earnings per share of $0.28, compared to $3,281 and $0.30 in Q2 fiscal 2025[74]. - Net income for the first six months of fiscal 2026 was $7,685 million, an increase of $1,438 million or 23% from $6,247 million in the prior year[97]. - Adjusted net income for the first six months of fiscal 2026 was $8,367 million, compared to $6,999 million in the same period of fiscal 2025[97]. - The effective tax rate for the second quarter of fiscal 2026 was 27%, up from 24% in the same quarter of fiscal 2025[95]. - Net income for the three months ended September 30, 2025, was $3,090 million, a decrease from $3,281 million in the same period of 2024, while net income for the six months ended September 30, 2025, was $7,685 million compared to $6,247 million in 2024[102]. - Adjusted EBITDA for the three months ended September 30, 2025, was $6,295 million, representing 9.5% of net sales, compared to $5,615 million and 10.5% in the same period of 2024[102]. Orders and Backlog - Orders booked in Q2 fiscal 2026 increased to $83,200 from $63,678 in Q2 fiscal 2025, resulting in a record backlog of $500,072[74]. - The company reported a book-to-bill ratio of 1.3 for the three months ended September 30, 2025, and 1.7 for the six months ended September 30, 2025, indicating strong order growth relative to sales[116]. - Total orders for the three months ended September 30, 2025, were $83,200 million, a 31% increase from $63,678 million in the same period of 2024, while total orders for the six months ended September 30, 2025, were $209,098 million, up 75% from $119,445 million in 2024[116]. - Backlog increased by $17,212 million (4%) during the quarter and $87,837 million (21%) for the first six months of fiscal 2026, reaching $500,072 million at September 30, 2025[116]. - Total backlog reached $500,072, representing a 23% increase from $407,009 in the prior year, with defense orders making up 85% of the backlog[117]. - The company expects to recognize revenue on approximately 35% to 40% of the backlog within one year[117]. Market and Sales Insights - The defense market comprised 85% of the total backlog at September 30, 2025, indicating strong demand driven by defense budget plans and geopolitical tensions[82]. - Domestic sales accounted for 83% of total sales in the second quarter of fiscal 2026, slightly down from 85% in the same quarter of fiscal 2025[87]. - Aftermarket sales to the Energy & Process and Defense markets increased by 15% year-over-year, totaling $20,230 million[88]. - The defense industry saw a 32% increase in sales, contributing $9,853 million to the overall growth, driven by project milestones and new programs[86]. - The company expects continued growth in alternative and clean energy opportunities, particularly in hydrogen production and small modular reactors[79]. Capital and Cash Management - Cash and cash equivalents at September 30, 2025, were $20,579, down from $21,577 at March 31, 2025, with no debt outstanding[74]. - Capital expenditures for the first six months of fiscal 2026 were $11,148 million, with expectations for total capital expenditures for fiscal 2026 to be between $15,000 million and $18,000 million[105]. - Cash and cash equivalents decreased to $20,579 million at September 30, 2025, from $21,577 million at March 31, 2025, primarily due to capital expenditures[106]. - The company entered into a five-year revolving credit facility with Wells Fargo providing a $50,000 million line of credit, with $5,319 million in letters of credit outstanding as of September 30, 2025[107]. - The company did not pay any dividends during the six months ended September 30, 2025, and currently has no intention to pay dividends for the foreseeable future[109]. Future Outlook - Fiscal 2026 outlook projects net sales between $225,000 and $235,000, with adjusted EBITDA estimated at $22,000 to $28,000[118]. - SG&A expenses are expected to be 17.5% to 18.5% of sales, including $6,000 to $7,000 for performance bonuses and ERP conversion costs[118]. - The company anticipates an increase in tariffs impacting financials by approximately $2,000 to $4,000 compared to the prior year[118]. - The company aims for 8% to 10% average annualized organic revenue growth and adjusted EBITDA margins in the low to mid-teens by fiscal 2027[120]. Tariffs and Foreign Currency - The company estimates the impact of tariffs on its financial statements to be approximately $1,000 million for the first six months of fiscal 2026[90]. - The estimated impact of tariffs for the first six months of fiscal 2026 is approximately $1,000, with a full-year range of $2,000 to $4,000[134]. - International sales constituted 17% of total sales in the first six months of fiscal 2026, with foreign currency fluctuations increasing cash balances by $65[131]. - The company has limited exposure to foreign currency purchases, representing about 4% of the cost of products sold[132].