GrafTech (EAF) Q2 2026 Earnings: Negative Gross Profit, $1.2B Debt
The Hook
GrafTech International $EAF sold 127.4 million dollars of graphite electrodes in the second quarter of 2026 and made a gross profit of negative 0.4 million dollars. Not negative operating income. Negative gross profit - the cost of producing the product, before a single dollar of overhead, exceeded what the product sold for.
In the same three months the company paid 24.4 million dollars of interest. That is 19% of revenue, and it is 1.7 times the entire operating loss. Put plainly: GrafTech's Q2 loss is not primarily an operating problem. The operating loss was 14.6 million dollars. The net loss was 40.5 million dollars. The 25.9 million dollar difference is almost entirely the capital structure.
Company Snapshot
GrafTech makes graphite electrodes - the consumable carbon rods that carry current into an electric arc furnace, the route by which scrap steel is melted. The 10-Q describes the company as "the only large-scale graphite electrode producer that is substantially vertically integrated into petroleum needle coke," the key raw material. One reportable segment, Industrial Materials; the filing states that approximately 90% of revenue from external customers comes from electrode sales.
This analysis reads the Form 10-Q for the quarter ended June 30, 2026, filed July 24, 2026, plus the FY2025 Form 10-K filed February 13, 2026. All figures below are from those filings unless labeled otherwise. Note that per-share figures reflect a 1-for-10 reverse stock split effective August 29, 2025, applied retroactively to all periods.
The Financial Story
The top line is flat and the mix is the problem. Revenue of 127.4 million dollars was down 3% from 131.8 million a year ago. Underneath that: sales volume rose 8%, to 30.8 thousand metric tons, while the weighted-average realized price fell 7% to roughly 3,900 dollars per metric ton. The filing attributes the price decline to "persistent competitive pressures across most of our principal commercial regions," partially offset by a favorable mix as US volume grew 29%. GrafTech is selling more tons for less money.
Cost per ton is genuinely improving. It is not improving fast enough. Cash cost of goods sold fell to 3,517 dollars per metric ton from 3,754 - a 6% reduction. Capacity utilization rose to 74% from 65%. Both are real operational gains. But at 3,900 dollars of price against 3,517 dollars of cash cost, each ton throws off about 383 dollars of cash margin before any overhead at all. Multiply that by the quarter's 30.8 thousand tons and you get roughly 11.8 million dollars - less than half of one quarter's interest bill.
| Q2 2026 income statement | Amount |
|---|---|
| Revenue | $127.4M |
| Cost of goods sold | $125.3M |
| Inventory write-down (lower of cost or market) | $2.5M |
| Gross profit | -$0.4M |
| Operating income | -$14.6M |
| Interest expense | $24.4M |
| Income tax expense | $1.7M |
| Net loss | -$40.5M |
The tax line looks like a typo. It is not. GrafTech recorded 1.7 million dollars of income tax expense on a 38.8 million dollar pretax loss - an effective rate of 4.4%. The 10-Q explains it precisely: the rate differs from the 21% US statutory rate "primarily due to no tax benefit being recorded on U.S. and Switzerland losses with a valuation allowance and the mix of foreign earnings." The company established a full valuation allowance in Q2 2025 against 34.2 million dollars of US and 8.4 million dollars of Swiss deferred tax assets. Losses in those jurisdictions now generate no tax shield, while profitable foreign subsidiaries still owe cash tax. This is the accounting signature of a company that no longer expects to earn enough in its home jurisdictions to use its own losses.
Cash went up. That is the wrong conclusion to draw from it. Cash and equivalents ended the half at 145.4 million dollars, up from 138.4 million at year-end. Here is the bridge for the six months: operating activities used 83.5 million dollars, investing used 9.8 million (19.0 million of capex against 9.3 million from asset sales), and financing provided 99.9 million. That financing line is one item - GrafTech drew the remaining 100 million dollars available under its Delayed Draw First Lien Term Loan Facility, before those commitments expired on July 23, 2026. Free cash flow for the half was negative 102.6 million dollars. The cash balance rose because the company borrowed, not because it earned.
The balance sheet has gone through zero and kept going. Stockholders' equity is a deficit of 345.6 million dollars, from a deficit of 259.6 million at year-end - 86 million dollars of erosion in six months. Accumulated deficit is 1.097 billion dollars. Total assets are 1.043 billion against 1.199 billion of long-term debt alone.
What the Filing Actually Says About Debt and Liquidity
This is where precision matters most, so here is the language rather than a paraphrase.
On liquidity, Item 2 of the 10-Q states: "We believe that we have adequate liquidity to meet our needs for at least the next twelve months. As of June 30, 2026, we had liquidity of $253.0 million, consisting of cash and cash equivalents of $145.4 million and $107.6 million of availability under our 2018 Revolving Credit Facility (after giving effect to $7.9 million of letters of credit)."
On covenants, Note 5 states: "We were in compliance with all of our debt covenants as of June 30, 2026 and December 31, 2025."
The 10-Q contains no going-concern disclosure and no substantial-doubt language. That is not an oversight to read into - it is the stated position, and it should be reported as such.
Three qualifications belong alongside it, all also from the filing. First, liquidity fell from 340.0 million dollars at December 31, 2025 to 253.0 million - and the 100 million dollar delayed-draw tranche that made up part of the earlier figure has now been drawn and cannot be drawn again. Second, the revolver is not fully available: "our operating performance as of June 30, 2026 and December 31, 2025 resulted in a restriction of the availability under the 2018 Revolving Credit Facility" - the facility carries a senior secured first lien net leverage covenant of 4.00 to 1.00, tested quarterly once drawings exceed a threshold, and current performance limits access. Third, there is a signal from the credit market itself: the 10-Q reports the fair value of the debt at approximately 912.4 million dollars against 1,198.6 million of carrying value.
| Long-term debt at June 30, 2026 | Amount |
|---|---|
| First lien term loans, due 2029 | $275.0M |
| 4.625% second lien notes, due 2029 | $498.2M |
| 9.875% second lien notes, due 2029 | $446.2M |
| Senior notes, due 2028 | $5.6M |
| Less unamortized discount and issuance costs | -$26.4M |
| Total long-term debt | $1,198.6M |
| Fair value of that debt (Level 1 quoted prices) | $912.4M |
The maturity profile is the genuine counterweight to everything above: only 5.6 million dollars comes due in 2028. Roughly 1.219 billion dollars of face value matures in 2029. December 2024's refinancing bought real time, and there is no near-term maturity wall. The cost of that time is the coupon - the 9.875% notes are fixed at 9.875%, the first lien term loans carried effective rates of 9.67% and 9.64% at quarter-end - which is why cash interest paid ran 44.5 million dollars in six months.
Valuation - What Would Have to Be True
GrafTech closed at 7.79 dollars on July 27, 2026, for a market capitalization of about 203 million dollars on 26.09 million shares (source: stockanalysis.com; the 52-week range of 4.92 to 20.32 dollars is split-adjusted). Conventional multiples do not work here: EBITDA is approximately zero, so EV/EBITDA is undefined, and there are no earnings for a P/E.
Two enterprise values are worth holding side by side. At carrying value, EV is roughly 1.257 billion dollars - equity of 203 million plus debt of 1.199 billion less cash of 145 million - about 2.5 times the roughly 505 million dollars of annualized revenue. At the debt's own quoted fair value, EV is about 970 million dollars, or 1.9 times. The 286 million dollar gap between those two numbers - the discount the credit market applies to GrafTech's debt - is larger than the entire equity market capitalization.
So the more useful question is not what the equity is worth but what price per ton makes the capital structure work. Here is that arithmetic, built only from disclosed figures, with the assumptions stated. Annualized from the first half: sales volume 117.8 thousand metric tons, SG&A 53.7 million dollars, R&D 6.0 million, cash interest 89.1 million, and capital expenditures of approximately 35 million dollars (the company's own 2026 guidance in the 10-Q) - 183.8 million dollars of cash cost per year to be covered by the margin on each ton. Cash cost per ton is held at the Q2 level of 3,517 dollars.
| Scenario | Realized price/MT | Cash margin/MT | Annualized cash margin | Vs. $183.8M of cash costs |
|---|---|---|---|---|
| Q2 2026 actual | $3,900 | $383 | $45.1M | -$138.7M |
| Announced increase, low end (+$600) | $4,500 | $983 | $115.8M | -$68.0M |
| Announced increase, high end (+$1,200) | $5,100 | $1,583 | $186.5M | +$2.7M |
Read that bottom row carefully. GrafTech announced price increases of 600 to 1,200 dollars per metric ton near the end of Q1 2026. If the top of that range were realized across every ton sold, the company would arrive at roughly cash breakeven - not profit, breakeven. That is the shape of the problem, and it is why the operating improvements, real as they are, do not by themselves resolve it.
The company is making progress toward it. The 10-Q discloses that since announcing the increases, "we have secured new customer commitments at weighted-average prices that are more than 15% above those for comparable commitments entered into during the first quarter of 2026." But the increases apply to uncommitted volume, and the same filing states that more than 90% of anticipated 2026 volume is already committed in the order book. The pricing benefit is therefore mostly a 2027 event, not a 2026 one. Management also guides to 5-10% year-over-year volume growth for 2026 and a low single-digit percentage-point decline in cash cost of goods sold per ton.
This is implied-value arithmetic under stated assumptions, not a price target and not investment advice.
Risks
The dominant risk is the one the numbers already describe: an operating business that does not currently generate gross profit is servicing 1.2 billion dollars of debt out of a shrinking liquidity balance, and its access to the revolver is restricted by its own operating performance. The FY2025 10-K risk factors are explicit that industry overcapacity "has adversely affected pricing in the past, and continues to do so," and that if the company "is unable to successfully execute future price increases, there may be material adverse effects on our market share, results of operations, cash flow, liquidity and financial condition." The announced increases are therefore not a bonus case - they are the base case the plan depends on.
Two specific contingencies are disclosed. The Brazilian tax authority has assessed GrafTech Brasil approximately 31.2 million dollars, including 18.8 million of interest and penalties, for the 2019-2020 period; the assessment was fully upheld by the Regional Judgment Office in October 2025 and is under appeal. Separately, long-running Brazilian labor litigation ("Brazil Clause IV") remains unquantified, and the filing states the company is "unable to assess the potential loss associated with these proceedings."
The Bottom Line
GrafTech's second quarter shows a manufacturer executing on the parts it controls - volume up 8%, utilization up nine points to 74%, cash cost per ton down 6% - inside a capital structure that consumes more cash than the manufacturing generates. Interest expense of 24.4 million dollars against gross profit of negative 0.4 million is the whole story in two numbers. The filing reports adequate liquidity for at least twelve months, full covenant compliance, no going-concern language, and no meaningful maturity before 2029. It also reports liquidity down 87 million dollars in six months, a fully drawn delayed-draw facility, and debt the market prices at 76 cents.
Three things to watch in Q3: whether realized price per ton actually turns up as the announced increases reach the order book, whether operating cash burn narrows from the first half's 83.5 million dollars, and what management says about the 2029 maturity as it moves inside a three-year window.
Financial data pulled directly from SEC filings via RoboSystems. Run your own queries on any public company at robosystems.ai. New customers get 50% off your first month with code ROBO50.