GC
GRAHAM CORP (GHM)·Q2 2026 Earnings Summary
Executive Summary
- Q2 FY2026 revenue rose 23% year over year to $66.0M and diluted EPS was $0.28; adjusted EPS was $0.31, with record backlog reaching $500.1M and book-to-bill of 1.3x .
- Results beat Wall Street consensus: revenue $66.0M vs $57.6M estimate*, and Primary EPS $0.31 vs $0.28 estimate*; Q1 FY26 had a small revenue miss ($55.5M vs $56.6M estimate*) with a large EPS beat ($0.45 vs $0.235 estimate*) (see Estimates Context) (*Values retrieved from S&P Global).
- Management reaffirmed FY2026 guidance across all metrics and narrowed expected tariff impact to $2–$4M (from $2–$5M), while highlighting Q3 seasonally lower revenue due to holidays .
- Defense and Space were notable demand drivers (MK48 Mod 7 $25.5M follow-on; ~$22M BN space turbomachinery/component orders spanning Q2/Q3), supported by capacity/capabilities investments (automated welding, enhanced radiographic testing, cryogenic test facility) .
- Stock narrative catalysts: record backlog visibility, multi-year Navy programs, accelerating Space orders and new cryogenic testing capacity, against transitory margin headwinds from unusually high material receipts and tariffs (explained below) .
What Went Well and What Went Wrong
What Went Well
- Broad-based growth: revenue +23% to $66.0M; Defense contributed +$9.9M with timing of project milestones and program growth; Energy & Process +$2.0M; aftermarket remained strong at $9.8M .
- Orders and backlog strength: Q2 orders $83.2M, book-to-bill 1.3x; backlog a record $500.1M with ~35–40% expected to convert in 12 months and ~85% defense mix .
- Strategic execution and investments: “investing in automation, advanced radiographic testing… NextGen steam ejector Nozzle, and our new cryogenic testing facility… expected to deliver returns above 20%” — CEO Matthew Malone .
What Went Wrong
- Margin compression: gross margin fell 220 bps to 21.7% due to an “extraordinarily high level of material receipts which carry a lower profit margin” and non-repeat of prior BlueForge grant benefit; tariffs estimated ~$1.0M impact YTD .
- Net income down y/y: net income $3.09M (-6%) and diluted EPS $0.28 (-7%) as mix and lower gross margin outweighed sales growth .
- Aftermarket orders moderated vs record prior year: Q2 aftermarket orders were $9.6M, down $3.2M y/y, though still historically strong .
Financial Results
P&L vs prior periods (oldest → newest)
Segment Sales (oldest → newest)
KPIs and Balance Sheet Highlights
Actual vs Consensus (SPGI) — Q2 FY2026, Q1 FY2026, Q2 FY2025
Values with asterisks retrieved from S&P Global.
Guidance Changes
Earnings Call Themes & Trends
Management Commentary
- “Our team continues to execute well… driving broad-based growth supported by a record $500.1 million backlog… trends are underscored by approximately $14.8 million of new Space orders… and a $25.5 million follow-on order for the MK48 Torpedo program” — Matthew J. Malone, CEO .
- “We are investing in automation, advanced radiographic testing… NextGenTM steam ejector Nozzle, and our new cryogenic testing facility… expected to deliver returns above 20%” — CEO .
- “We are reaffirming our full-year guidance… our third quarter typically represents our seasonally lowest revenue period” — Christopher J. Thome, CFO .
- “Adjusted EBITDA was $6.3M… backlog to a record $500.1M… roughly 35–40% expected to convert to revenue over the next 12 months” — CFO prepared remarks .
Q&A Highlights
- Space orders cadence and classification: ~$22M total with $15M booked in Q2 and ~$7M post-quarter for Q3; investments in machining and testing are within CapEx plan .
- Guidance maintained due to timing; Q3 seasonality reiterated; strong first-half consistent with plan .
- Cryogenic facility status: Florida propellant test facility nearing occupancy; initial internal product testing then customer testing expected this calendar year .
- Defense orders diversification and shutdown impact: Q2 bookings diversified (torpedoes, aftermarket, space); limited impact from government shutdown beyond minor review delays .
- Material receipts drove revenue and pressured margin (~$8–$10M receipts; ~180 bps margin impact), explaining mix dynamics in Defense .
Estimates Context
- Q2 FY2026 beat: revenue $66.0M vs $57.6M estimate*; Primary EPS $0.31 vs $0.28 estimate* — strong upside driven by defense milestone timing and Space orders (see Financial Results) .
- Q1 FY2026: revenue $55.5M vs $56.6M estimate* (slight miss) but EPS $0.45 vs $0.235 estimate* (material beat), reflecting mix and execution .
- Q2 FY2025 beat: revenue and EPS above estimates* .
- FY2026 consensus revenue ~$234.7M* aligns with reiterated guidance ($225–$235M); given Q2 beat and backlog conversion, near-term consensus may drift upward but Q3 seasonality and tariffs temper the trajectory .
Values with asterisks retrieved from S&P Global.
Key Takeaways for Investors
- Quality beat with visibility: revenue/EPS beats vs consensus*, record backlog, and book-to-bill >1x support multi-quarter visibility despite Q3 seasonality .
- Margin optics: near-term gross margin pressure from unusually high material receipts is transitory; structural initiatives (>20% ROIC) and Barber-Nichols earn-out sunset by FY2026 end underpin FY2027 margin targets .
- Defense durability: multi-year Navy programs (Virginia-class, MK48) and protected contract terms mitigate macro risk; backlog ~85% defense provides stability .
- Space acceleration: ~$22M in new orders and testing capacity (Colorado/Florida) provide an additional growth leg in commercial space .
- Tariffs manageable: narrowed FY impact to $2–$4M with mitigations via sourcing and contract language .
- Aftermarket normalization: sales remain robust; proactive initiatives (AI quoting, installed base mapping) aim to expand recurring, high-margin revenue .
- Trading setup: beat plus backlog/capacity catalysts vs margin/tariff headwinds and Q3 seasonality; monitor conversion pace and Space facility ramp for incremental upside .
Appendix: Other Relevant Q2 FY2026 Press Releases
- Graham announced multiple orders from leading Space/Aerospace customers totaling ~$22M expected to convert over 12–24 months, with investments in CNC capacity and a liquid nitrogen test stand complementing the Florida cryogenic facility .