Tetra Tech's Earnings Lag Estimate

Zacks

Tetra Tech Inc. (TTEK) reported second-quarter fiscal 2013 net income of $24.8 million or 38 cents per share compared to $22.3 million or 35 cents in the year-ago quarter. Despite a decent year-over-year increase, the reported earnings missed the Zacks Consensus Estimate by 2 cents.

Total Revenue

Total revenue in the reported quarter was $642.0 million compared with $624.3 million in the prior-year period. Revenue, net of subcontractor costs, was $520.9 million compared with $476.9 million in the year-earlier quarter, and failed to meet the Zacks Consensus Estimate of $532 million. Backlog was $2.03 billion at the end of the reported quarter, flat year over year.

The company benefited from a high demand for its water and environmental services from commercial clients in the quarter. Revenue from the U.S. commercial and international clients accounted for 59% of net revenue.

Earnings before interest, taxes, depreciation, and amortization (:EBITDA) were $54.2 million, up 10.1% compared with $49.2 million in the second quarter of fiscal 2012. Operating income in the quarter aggregated $37.7 million compared with $35.5 million in the prior-year period.

Segment-Wise Revenue

Engineering and Consulting Services (ECS, 43% of total revenue) revenue came in at $259.2 million compared with $279.2 million in the year-earlier quarter.

Technical Support Services (TSS, 32%) reported revenues of $222.1 million compared with $249.3 million in year-ago quarter.

Remediation and Construction Management (RCM, 25%) revenue totaled $178.5 million compared with $117.4 million in prior-year quarter.

Balance Sheet & Cash Flow

Cash and cash equivalents at quarter-end was $159.6 million with long-term debt of $264 million.

Tetra Tech generated cash flow from operations of $44.3 million compared with $33.1 million in the prior-year period.

Outlook

Management apprehends prevailing weakness in Eastern Canada and mining to adversely impact its business in the upcoming quarters. Management also expects revenue from oil & gas to double in 2013 to $300 million.

The company expects earnings to be in the range of 32 cents to 42 cents per share in the third quarter of fiscal 2013. Revenue, net of subcontractor cost, is expected to be in the range of $525 million to $575 million in the imminent quarter.

For the second-half of the year, management expects revenue from ECS segment to be 45% of total revenue with growth in Western Canada and fall in revenue in Eastern Canada. However, TSS and RCM segments are expected to contribute 30% and 25% of total revenue respectively. Within the RCM segment, revenue from both Oil & Gas and Parkland & AEG are expected to grow in the second half.

Tetra Tech has lowered its fiscal 2013 earnings per share and revenue guidance. For fiscal 2013 earnings per share are expected to be in the range of $1.60 to $1.75, down from its prior guidance of $1.85 to $1.96. Management has also lowered its upper end of revenue guidance and now expects to report revenue, net of subcontractor cost, in the range of $2.15 billion to $2.25 billion compared to its prior guidance of $2.15 billion to $2.35 billion.

Tetra Tech currently has a Zack Rank #4 (Sell). Some other companies in the industry worth mentioning are Calgon Carbon Corporation (CCC) with a Zacks Rank #1 (Strong Buy), CECO Environmental Corp. (CECE) and Fuel-Tech Inc. (FTEK) each carrying a Zacks Rank #2 (Buy).
 

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