Graham Q4 Earnings Call Points to Backlog-Led Growth

Graham Corporation GHM used its fourth-quarter call to make a forward-looking case centered on backlog, capacity investments and the FlackTek acquisition rather than on quarterly margin pressure. Management framed fiscal 2026 as a year that expanded the company’s platform for longer-term growth.

That message mattered because fiscal 2027 guidance called for another step up in revenues and adjusted EBITDA even as the latest quarter showed a lower gross margin and softer earnings mix.

Graham Addresses Margin and Cash Questions

The fourth-quarter adjusted EPS of $0.33 beat the Zacks Consensus Estimate of $0.30, with an average surprise of 9.09%. Revenues of $67.08 million exceeded the $60 million estimate, the average revenue surprise being 11.58%.

Graham Corporation Price, Consensus and EPS Surprise

Graham Corporation price-consensus-eps-surprise-chart | Graham Corporation Quote

Gross margin fell to 22.7% from 27.0%, and adjusted EBITDA margin slipped to 10.2% from 12.9%. Management attributed the pressure largely to the mix, including more lower-margin Defense work, lower aftermarket volume and FlackTek purchase accounting effects.

Thome said some of those pressures should ease. He indicated FlackTek margins should improve as volume rises, while fiscal 2027 gross margin is expected between 24.5% and 25.5%. Still, SG&A is projected at 16.5% to 17.5% of sales as the company continues to invest in people, technology and commercialization.

Cash flow drew scrutiny in Q&A. Thome said cash conversion can remain lumpy because of contract timing and customer deposit patterns, and he also pointed to about $4 million of fourth-quarter outflow tied to transaction bonuses assumed in the FlackTek deal.

GHM Leans on Record Backlog

President and CEO Matthew Malone said the core investment case rests on visibility. Fiscal 2026 ended with record orders of $359.4 million, a 1.5 book-to-bill ratio and a backlog of $532.6 million, up 29% from the prior year. Management said roughly 35% to 40% of that backlog should convert to revenues over the next 12 months.

That set up fiscal 2027 guidance for revenues of $285 million to $295 million and adjusted EBITDA of $35 million to $40 million. CFO Christopher Thome said the outlook reflects another year of meaningful growth and stays aligned with Graham’s long-term profitability goals.

Management tied that confidence to a stronger balance sheet as well. The company noted a $50 million investment from accounts advised by T. Rowe Price early in fiscal 2027, with $13 million used to repay debt and the balance available for growth initiatives.

Graham Sees Defense and Space Scaling

Malone’s prepared remarks pointed first to Defense, where demand remained strong across naval platforms and where recent capacity additions are now supporting production. He highlighted automated welding, 3D inspection and X-ray capabilities at Batavia, along with an overhaul site and liquid nitrogen test facility at Arvada.

On the call, management described Defense wins less as isolated program additions and more as proof that Graham’s technology is moving into higher-value applications such as radar platforms, directed-energy laser work and other compact power-dense systems. That framing suggested a broader content opportunity as military programs mature into production.

Space was described as the next leg of acceleration. Malone said customers are moving from development and qualification into higher-rate production, while Q&A commentary pointed to rising launch cadence, more providers and a widening set of payload opportunities. Orders in Space rose 76% year over year in fiscal 2026, according to the press release.

GHM Expands the Platform With FlackTek

FlackTek was a major strategic topic. Malone said the deal establishes advanced mixing and materials processing as Graham’s third core technology platform alongside vacuum and heat transfer and turbomachinery. He also said the early integration work is on track and customer engagement is strong.

The acquisition contributed $2.8 million to fourth-quarter revenues, and management said it broadens the company’s reach across Defense, Energy and Process, and Space. Malone emphasized the long-term commercialization strategy more than near-term cost synergies, signaling that growth from adoption is the bigger near-term objective.

During Q&A, Malone also said acquisition appetite remains intact. He said Graham now has a healthy pipeline of targets but will stay disciplined and selective, especially because its organic opportunity set remains strong.

GHM Q&A Clarify the Pressure Points

Analysts pressed management on whether recent order strength marked a steadier run rate. Thome answered that quarterly orders can still be volatile, but said diversification across markets is making the business more stable than before.

Questions also focused on whether Defense and Space could carry growth together. Malone said Graham follows end-market tailwinds and is continuing to invest where demand is strongest, while keeping exposure to the Energy and Process aftermarket and new energy opportunities, such as small modular reactor work.

Another important exchange centered on FlackTek integration and deal activity. Malone’s tone was confident on integration progress and equally clear that M&A has not gone on pause, though he repeatedly stressed discipline and fit.

Graham Leaves a Growth-First Message

The closing tone of the call was notably expansionary. Malone and Thome returned repeatedly to capacity additions, automation, test infrastructure and commercialization as the building blocks for future growth rather than as one-time projects.

That leaves Graham exiting fiscal 2026 with a message centered on execution against backlog, Defense and Space scaling, and a broader technology portfolio after FlackTek. The near-term margin tradeoff was acknowledged, but management’s posture stayed focused on operating leverage over time.

Zacks Signals on GHM

GHM carries a Zacks Rank #2 (Buy). Under the Zacks framework, which points to favorable earnings estimate revision trends, the best combinations historically come from Zacks Rank #1 (Strong Buy) or #2 stocks paired with Style Scores of A or B. You can see the complete list of today’s Zacks #1 Rank stocks here.

Here, the Style Scores are less supportive, with Value at F, Growth at D, Momentum at D and a VGM Score of F. Zacks says weaker Style Scores can limit near-term upside even when the rank is favorable, and the rank itself can change as estimate revisions adjust after the quarter.

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