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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)

MetricQ2 FY2025Q1 FY2026Q2 FY2026
Revenue ($USD Millions)$53.6 $55.5 $66.0
Gross Margin (%)23.9% 26.5% 21.7%
Operating (EBIT) Margin (%)7.9% 8.9% 6.5%
Net Income Margin (%)6.1% 8.3% 4.7%
Diluted EPS ($)$0.30 $0.42 $0.28
Adjusted EBITDA ($USD Millions)$5.6 $6.8 $6.3
Adjusted EBITDA Margin (%)10.5% 12.3% 9.5%

Segment Sales (oldest → newest)

Segment ($USD Millions)Q2 FY2025Q1 FY2026Q2 FY2026
Defense$30.897 $29.535 $40.750
Energy & Process$19.250 $22.574 $21.278
Space$3.416 $3.378 $3.999
Total$53.563 $55.487 $66.027

KPIs and Balance Sheet Highlights

KPIQ2 FY2025Q1 FY2026Q2 FY2026
Orders ($USD Millions)$63.7 $125.9 $83.2
Book-to-Bill (x)1.2 2.3 1.3
Backlog ($USD Millions)$407.0 $482.9 $500.1
Aftermarket Sales ($USD Millions)N/A$10.4 $9.8
Cash ($USD Millions)$32.3 $10.8 $20.6
DebtNone None None
Revolver Availability ($USD Millions)$44.7 $44.3 $44.7

Actual vs Consensus (SPGI) — Q2 FY2026, Q1 FY2026, Q2 FY2025

MetricQ2 FY2025Q1 FY2026Q2 FY2026
Revenue ($USD Millions)Est: $49.7*; Act: $53.563 Est: $56.59*; Act: $55.487 Est: $57.55*; Act: $66.027
Primary EPS ($)Est: $0.12*; Act: $0.30 Est: $0.235*; Act: $0.45 Est: $0.28*; Act: $0.31 (Adjusted)

Values with asterisks retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious Guidance (Aug 5, 2025)Current Guidance (Nov 7, 2025)Change
Net SalesFY2026$225M–$235M $225M–$235M Maintained
Gross Margin (%)FY202624.5%–25.5% 24.5%–25.5% Maintained
SG&A (% of sales, incl. amort.)FY202617.5%–18.5% 17.5%–18.5% Maintained
Adjusted EBITDA ($M)FY2026$22–$28 $22–$28 Maintained
Effective Tax Rate (%)FY202620%–22% 20%–22% Maintained
Capital Expenditures ($M)FY2026$15–$18 $15–$18 Maintained
Tariff Impact ($M)FY2026$2–$5 $2–$4 Narrowed (lowered high end)
Seasonality NoteFY2026 Q3Not statedQ3 typically lowest revenue period Added reminder

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 FY2025, Q1 FY2026)Current Period (Q2 FY2026)Trend
Defense programs (Navy, torpedoes)Virginia-class $136.5M multi-year; backlog growth; protected contract clauses MK48 Mod 7 $25.5M follow-on; ~85% of backlog defense; diversified Q2 defense bookings Strengthening defense visibility
Space momentumCryogenic facility progress; pipeline strong; early low-rate production programs ~$22M BN space orders across Q2/Q3; liquid nitrogen stand commissioned; Florida facility nearing occupancy Accelerating bookings and capacity
TariffsFY2026 impact estimated $2–$5M; mitigations via in-country partners and contract terms YTD impact ~$1.0M; narrowed FY range to $2–$4M Impact manageable; range narrowed
Margin driversFY2025 margin expansion from volume/pricing; Q1 FY26 aftermarket mix lifted margins Q2 margin pressure from high material receipts (~180 bps impact) and mix Near-term headwind; structural investments ongoing
Capex & automationState-of-the-art automated welding; radiographic testing; Florida cryogenic test; >20% ROIC targets Continued investment; CFO confirms >20% ROIC; Batavia 30k sq ft facility highlighted Execution on schedule
Aftermarket strategy & AIProactive aftermarket, AI quick-quote initiative underway Aftermarket sales strong but orders normalized; defense aftermarket activity noted Building repeatable revenue

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 .