Why Is Tetra (TTEK) Up 1.6% Since Last Earnings Report?
A month has gone by since the last earnings report for Tetra Tech (TTEK). Shares have added about 1.6% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Tetra due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Tetra Tech Beats on Q4 Earnings and Sales Estimates
Tetra Tech reported fourth-quarter fiscal 2023 (ended Oct 1, 2023) adjusted earnings of $1.78 per share, which surpassed the Zacks Consensus Estimate of earnings of $1.45 per share. The bottom line surged 41.3% year over year driven by strong momentum in all segments.
The bottom line also surpassed management’s projection of earnings of $1.43-$1.48 per share.
Revenue & Segmental Performance
In the fiscal fourth quarter, Tetra Tech generated adjusted revenues of $1,260.6 million, reflecting a year-over-year increase of 39.7%. Adjusted net revenues (adjusted revenues minus subcontractor costs) were $1,057.4 million, up 43.6% year over year. The quarterly top line came above management’s guidance of $965-$1,015 million.
Tetra Tech’s revenues exceeded the Zacks Consensus Estimate of $981 million.
The backlog at the end of the fiscal quarter was $4,790.4 million, up 28% year over year.
Revenues from U.S. Federal customers (accounting for 29% of the quarter’s revenues) were up 46% year over year, supported by federal IT growth. U.S. Commercial sales (19% of the quarter’s revenues) increased 13% year over year on higher clean Energy and Environmental services sales.
U.S. State and Local sales (12% of the quarter’s revenues) increased 15%, due to strength in digital water and resilience planning. International sales (40% of the quarter’s revenues) increased 78% year over year, backed by higher infrastructure sales.
Tetra Tech reports revenues under the segments discussed below:
Net sales of the Government Services Group segment were $457 million, up 36% year over year. Revenues from the Commercial/International Services Group segment totaled $601 million, representing a year-over-year increase of 50%.
Margin Profile
In the fiscal fourth quarter, Tetra Tech’s subcontractor costs totaled $203.2 million, reflecting an increase of 22.1% from the year-ago quarter. Other costs of revenues (adjusted) were $845.3 million, up 45.7% from the fiscal fourth quarter of 2022. Selling, general and administrative expenses were $77.2 million, up 26.9% from the year-ago fiscal quarter.
Operating income (adjusted) in the reported fiscal quarter increased 43.8% year over year to $134.9 million while the adjusted margin increased 10 basis points to 12.8%.
Balance Sheet and Cash Flow
While exiting fourth-quarter fiscal 2023, Tetra Tech had cash and cash equivalents of $168.8 million compared with $185.1 million recorded at the end of the fourth quarter of fiscal 2022. Long-term debt was $879.5 million compared with $246.3 million recorded at the end of fourth-quarter fiscal 2022.
In fiscal 2023, Tetra Tech generated net cash of $368.5 million from operating activities compared with $336.2 million in the prior fiscal year’s comparable period. Capital expenditure was $26.9 million, up 154.2% year over year. In the said fiscal period, TTEK’s proceeds from borrowings amounted to $994.9 million while repayments on long-term debt totaled $161.5 million.
Shareholder-Friendly Policies
Tetra Tech distributed dividends totaling $52.1 million in fiscal 2023. This compares favorably with the dividends of $46.1 million distributed in the year-ago fiscal period.
Fiscal 2024 Outlook
For fiscal 2024 (ending September 2024), Tetra Tech anticipates net revenues to be $4.05-$4.25 billion. Adjusted earnings are predicted to be $5.70-$6.00 per share.
For the first quarter of fiscal 2024 (ending December 2024), management estimates net revenues to be $950-$1000 million. Adjusted earnings are projected to be $1.30-$1.38 per share for the fiscal quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
At this time, Tetra has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Tetra has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Tetra Tech, Inc. (TTEK) : Free Stock Analysis Report
