GHM Q3 Deep Dive: Strong End-Market Demand and Backlog Support Full-Year Outlook

Industrial fluid and energy systems manufacturer Graham Corporation (NYSE: GHM) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 23.3% year on year to $66.03 million. The company expects the full year’s revenue to be around $230 million, close to analysts’ estimates. Its GAAP profit of $0.31 per share was 10.7% above analysts’ consensus estimates.

Is now the time to buy GHM? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Graham Corporation’s third quarter was marked by broad-based revenue growth, with leadership attributing the gains to robust activity in defense programs, momentum in commercial space applications, and a steady performance across energy and process markets. CEO Matthew Malone cited the timing of key project milestones and material receipts, especially in the defense segment, as primary drivers. Malone emphasized that investments in advanced manufacturing and inspection capabilities, along with the recent opening of a new facility in Batavia, New York, contributed to operational execution and positioned the company to fulfill strong demand from long-standing U.S. Navy contracts.

Looking forward, management believes Graham’s record backlog and ongoing capacity investments set the stage for continued growth, particularly as defense and space markets expand. CFO Christopher Thome reiterated that the company's capital allocation remains disciplined, with investments in new test facilities and advanced technologies expected to yield over 20% returns on invested capital. Malone highlighted the strategic acquisition of Xdot Bearing Technologies and ongoing projects in small modular nuclear reactors as key elements supporting long-term visibility, stating, “We’re well positioned to capitalize on opportunities ahead as commercial and government demand accelerates.”

Key Insights from Management’s Remarks

Management cited strong execution in defense and space, as well as investment in advanced facilities and technologies, as the main contributors to revenue and backlog growth.

• Defense program momentum: Graham saw increased demand from U.S. Navy contracts, particularly the MK48 Mod 7 Heavyweight Torpedo program. The company highlighted the commissioning of a new advanced manufacturing facility in Batavia, New York, which will enhance throughput and quality for defense projects.
• Space segment order strength: The Barber-Nichols subsidiary secured $22 million in new orders from commercial space launch customers. These wins were supported by investments in cryogenic test facilities and expanded testing infrastructure, aiming to meet rising demand for precision-engineered turbomachinery.
• Aftermarket sales resilience: Aftermarket demand across energy, process, and defense markets remained strong, with year-to-date growth supporting a diversified revenue base and demonstrating customer reliance on Graham’s installed products.
• Material receipts timing: Revenue recognition was influenced by an unusually high level of material receipts in defense contracts during the quarter, a factor that management noted contributed to both revenue growth and a temporary reduction in gross margins due to lower-margin pass-throughs.
• Strategic technology acquisition: The purchase of Xdot Bearing Technologies expanded Graham’s engineering capabilities in high-speed rotating machinery. Management stated that Xdot’s foil bearing technology will allow Graham to compete in new aerospace, energy transition, and industrial applications, with expected accretive impact on results.

Drivers of Future Performance

Graham’s guidance reflects management’s confidence in robust end-market demand, ongoing investment in capacity, and continued order momentum in defense and space.

• Backlog conversion and visibility: Management expects 35–40% of the record $500.1 million backlog to convert to revenue over the next year, with a significant portion tied to multi-year defense contracts that provide stability and long-term planning ability.
• Capacity expansion and automation: Investments in advanced manufacturing, automation, and new testing facilities are projected to increase throughput and support execution on both current and anticipated orders. Management cited over 20% expected returns on invested capital for these projects.
• Emerging market and technology risks: While demand trends are positive, management acknowledged that extended decision cycles for certain large global projects and the inherent lumpiness of order timing could create quarterly variability. The successful integration of the Xdot acquisition and adoption of new technologies will also be important to sustaining growth.

Catalysts in Upcoming Quarters

In upcoming quarters, the StockStory team will closely track (1) the pace and mix of backlog conversion, especially in defense and space, (2) execution and ramp-up at the new Batavia and Florida facilities to assess throughput gains, and (3) the integration of Xdot Bearing Technologies and its impact on product innovation. Additionally, we will monitor the order pipeline for small modular nuclear reactor and commercial space applications as potential drivers of incremental growth.

Graham Corporation currently trades at $62, in line with $62.30 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free for active Edge members).

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