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Tetra Tech (TTEK) Displays Solid Prospects Despite Headwinds

Tetra Tech, Inc. TTEK has been benefiting from its presence in the diverse end markets, which allows it to offset risks associated with a single market. In the quarters ahead, strength in businesses associated with the local, state, commercial and international clients will likely benefit TTEK. Water & environment, international development and climate change projects have also been aiding the company for some time. Factors like U.S. infrastructure stimulus, U.S. administration priorities and TTEK’s global focus on climate change are anticipated to drive its performance in the quarters ahead.

TTEK intends to strengthen and expand its businesses through acquisitions. Its March 2022 acquisition of Piteau Associates boosted its capabilities in advanced analytics for providing water management and geotechnical solutions to its customers. The Axiom Data Science buyout in the same month strengthened TTEK’s advanced climate data analytics solutions offerings. The addition of Enterprise Automation in October 2021 added vigor to its digital technology solutions for water-sector clients. Tetra Tech’s acquisition spending totaled $33.6 million in the first nine months of fiscal 2022 (ending September 2022).

Among other companies from the Industrial Products sector, Ingersoll Rand Inc. IR focuses on strengthening and expanding its businesses through the acquisition of assets. In August 2022, IR inked a deal to acquire Holtec Gas Systems LLC (Holtec), Shanghai Hanye Air Purifying Technology Co., Ltd (Hanye) and Hydro Prokav Pumps (India) Private Limited (Hydro Prokav). The addition of Holtec and Hanye will likely enhance IR’s air-treatment capabilities, while Hydro Prokav will likely expand its presence in the progressive cavity pumps market.

Also, Ingersoll Rand’s acquisition of Houdstermaatschappij Jorc (February 2022) expanded the Industrial Technologies & Services segment’s product offerings. Some of the other notable buyouts made by IR are Seepex, Maximus, Air Dimensions, and Tuthill Vacuum and Blower Systems in 2021.

Acquisitions made over time have also been aiding Applied Industrial Technologies, Inc. AIT through the expansion of product lines and market presence. AIT’s buyout of R.R. Floody (August 2021) boosted its product offerings in the automation technology space and expanded its reach in the U.S. Midwest market.

Also, Applied Industrial acquired the businesses of Advanced Control Solutions in October 2020 and Gibson in January 2021, adding value to its automation solution offerings.

Coming back to Tetra Tech, its measures to reward its shareholders through share repurchases and dividend payouts are encouraging. In the first nine months of fiscal 2022, the company paid out dividends worth $33.9 million and repurchased $150 million of shares. In May 2022, the quarterly dividend rate was hiked 15%. TTEK was left to repurchase shares worth $397.8 million while exiting the third quarter of fiscal 2022 (ended June 2022).

However, escalating costs and expenses have been a major concern for TTEK over time. In the fiscal third quarter, its subcontractor cost increased 3.7% on a year-over-year basis. Also, its selling, distribution and administrative expenses rose 8.6%. If not checked, high costs of raw materials, labor woes and supply-chain issues may adversely impact margins and profitability in the quarters ahead.

Foreign exchange woes are a major concern for Tetra Tech since a considerable percentage of its revenues comes from outside the United States. Decline in the value of the local currencies of foreign markets relative to the U.S. dollar might affect TTEK’s top line in the quarters ahead.

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