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Tetra Tech (TTEK) Beats Q3 Earnings Estimates, Ups FY19 View

Zacks Equity Research

Tetra Tech, Inc. TTEK reported better-than-expected results for the third quarter of fiscal 2019 (ended Jun 30, 2019), with earnings surpassing estimates by 11.25%. This was its eighth consecutive quarter of impressive results.

The company’s adjusted earnings per share in the reported quarter were 89 cents, surpassing the Zacks Consensus Estimate of 80 cents. Also, its earnings grew 25.4% from the year-ago quarter’s 71 cents on strengthening businesses related to municipal water infrastructure, disaster response, renewable energy and other businesses.

Backlog Solid, Revenues Up Y/Y

In the reported quarter, Tetra Tech generated adjusted revenues of $825.5 million, reflecting year-over-year growth of 8.4%. Alternatively, adjusted net revenues (adjusted revenues minus subcontractor costs) were $623 million, reflecting growth of 9.5% from the year-ago quarter.

Further, the company’s revenues surpassed the Zacks Consensus Estimate of $605.4 million by 2.9%.

Backlog at the end of the quarter was $2,834 million, reflecting growth of 16.4% from the year-ago figure.

Revenues from the U.S. Federal customers (accounted for 28% of the quarter’s revenues) rose 4% year over year on growth in the federal IT business. Conversely, the U.S. Commercial sales (24% of the quarter’s revenues) grew 1% year over year, and the U.S. State and Local sales (19% of the quarter’s revenues) rose 52% on growth in disaster response & recovery planning as well as the broad-based infrastructure business. International sales (29% of the quarter’s revenues) improved 12% on growth in Canada sales.

The company reports revenues under the segments discussed below:

Net sales of Government Services Group were $352.6 million, up 17.1% year over year. This improvement was driven by healthy growth in disaster response and recovery planning, and municipal water infrastructure businesses.

Revenues from Commercial / International Services Group totaled $270.5 million, reflecting year-over-year growth of 1%. Results were driven by healthy growth in Canada business and strengthening renewable energy sales.

Margins Flat Y/Y

In the reported quarter, Tetra Tech’s subcontractor costs totaled $202.6 million, reflecting growth of 4.2% from the year-ago quarter. Other costs of revenues were $505.2 million, up 9.6% year over year. Selling, general and administrative expenses were $53.1 million, down 1.4% year over year.

Adjusted operating income in the reported quarter grew 9.6% year over year to $65.3 million while adjusted margin was flat year over year at 10.5%.

Balance Sheet and Cash Flow

Exiting the fiscal third quarter, Tetra Tech had cash and cash equivalents of $111.2 million, down 14.9% from $130.7 million recorded at the end of the last reported quarter. Long-term debt was up 40.1% sequentially at $324.1 million.

In the first nine months of fiscal 2019, the company generated net cash of $113.4 million from operating activities, roughly 48.6% above the year-ago quarter figure of $76.3 million. Capital expenditure was $10 million, up from $6.3 million in the first nine months of fiscal 2018.

In the first nine months of fiscal 2019, the company bought back shares worth $75 million and distributed dividends totaling $21.5 million. It had $150-million authorization left under the share buyback program at the end of the fiscal third quarter.

A couple of days before the earnings release, the company’s board of directors approved a quarterly dividend payout of 15 cents per share to shareholders of record as of Aug 14. The payment will be made on Aug 30.

Outlook

Tetra Tech stands to gain from healthy order wins from the U.S. federal government agencies, service offering in the U.K. and growing disaster recovery planning. For fiscal 2019 (ending September 2019), the company anticipates net revenues of $2.37-$2.41 billion, higher than the previously stated $2.3-$2.4 billion.

Earnings per share for the fiscal year will likely be $3.10-$3.15, up from $2.95-$3.05 stated earlier. Effective tax rate in the fiscal year is anticipated to be 23% versus 24% mentioned earlier.

For the fiscal fourth quarter (ending September 2019), net revenues are anticipated to be $610-$650 million and earnings per share are likely to be 82-87 cents.

Tetra Tech, Inc. Price, Consensus and EPS Surprise

 

Tetra Tech, Inc. Price, Consensus and EPS Surprise

Tetra Tech, Inc. price-consensus-eps-surprise-chart | Tetra Tech, Inc. Quote

Zacks Rank & Other Stocks to Consider

With a market capitalization of approximately $4.4 billion, Tetra Tech currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the Zacks Industrial Products sector are CECO Environmental Corp. CECE, Energy Recovery, Inc. ERII and DXP Enterprises, Inc. DXPE. While CECO Environmental and Energy Recovery currently sport a Zacks Rank #1 (Strong Buy), DXP Enterprises carries a Zack Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for all these stocks have improved for the current year. Further, average earnings surprise for the last four quarters was a positive 25% for CECO Environmental, 225% for Energy Recovery and 46.55% for DXP Enterprises.

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