Why Is Tetra (TTEK) Up 7.2% Since Last Earnings Report?
It has been about a month since the last earnings report for Tetra Tech (TTEK). Shares have added about 7.2% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important drivers.
Tetra Tech Q2 Earnings & Revenues Beat, Increase Y/Y
Tetra Tech reported impressive second-quarter fiscal 2023 (ended Apr 2, 2023) results. The company’s earnings beat the Zacks Consensus Estimate by 21.9%, marking the 23rd consecutive quarter of delivering a surprise. Sales also surpassed estimates by 19.7%.
Tetra Tech’s adjusted earnings per share in the reported fiscal quarter were $1.17, ahead of the Zacks Consensus Estimate of 96 cents. Quarterly earnings expanded 19.4% from the year-ago reported figure of 98 cents per share.
The bottom line also surpassed management’s projection of earnings of $1.03-$1.08 per share.
Revenue & Segmental Performance
In the fiscal second quarter, Tetra Tech generated adjusted revenues of $1,158.2 million, reflecting a year-over-year increase of 35.8%. Adjusted net revenues (adjusted revenues minus subcontractor costs) were $969.6 million, up 38.6% year over year. The quarterly top line came above management’s guidance of $685-$735 million.
Tetra Tech’s revenues exceeded the Zacks Consensus Estimate of $810 million.
The backlog at the end of the fiscal quarter was $4,274.7 million, up 18% year over year.
Revenues from U.S. Federal customers (accounting for 31% of the quarter’s revenues) were up 59% year over year, supported by broad-based Water and environmental growth. U.S. Commercial sales (19% of the quarter’s revenues) increased 25% year over year on higher renewable energy and environmental programs.
U.S. State and Local sales (12% of the quarter’s revenues) increased 12% due to strength in digital water. International sales (38% of the quarter’s revenues) increased 55% year over year, backed by strength in high-performance building.
Tetra Tech reports revenues under the segments discussed below:
Net sales of the Government Services Group segment were $436 million, up 29% year over year. Revenues from the Commercial/International Services Group segment totaled $534 million, representing a year-over-year increase of 47%.
Margin Profile
In the fiscal second quarter, Tetra Tech’s subcontractor costs totaled $188.6 million, reflecting an increase of 23.2% from the year-ago quarter. Other costs of revenues (adjusted) were $798.7 million, up 41.5%. Selling, general and administrative expenses were $82.3 million, up 36.2% from the year-ago fiscal quarter.
Operating income (adjusted) in the reported fiscal quarter increased 18.8% year over year to $88.5 million, while the adjusted margin declined 160 basis points to 9.1%.
Balance Sheet and Cash Flow
While exiting second-quarter fiscal 2023, Tetra Tech had cash and cash equivalents of $231.4 million, up 25% from $185.1 million recorded at the end of the fourth quarter of fiscal 2022. Long-term debt increased 332.5% from $246.2 million recorded at the end of fourth-quarter fiscal 2022, to $1,065 million in the reported fiscal quarter.
In the first six months of fiscal 2023, Tetra Tech generated net cash of $113.1 million from operating activities, compared with $177.5 million in the prior fiscal year’s comparable period. Capital expenditure was $10.3 million, up 83.2% year over year. In the said fiscal period, TTEK’s proceeds from borrowings amounted to $975.9 million, while repayments on long-term debt totaled $249.7 million.
Shareholder-Friendly Policies
Tetra Tech distributed dividends totaling $24.4 million in the first six months of fiscal 2023. This compares favorably with the dividends of $21.6 million distributed in the year-ago fiscal period.
Fiscal 2023 Outlook
For fiscal 2023 (ending September 2023), Tetra Tech anticipates net revenues of $3.10 - $3.20 billion, compared with $3.00- $3.15 billion anticipated earlier. Adjusted earnings are predicted to be $5.07-$5.17 per share, compared with $4.90 - $5.05 per share predicted earlier. The midpoint of the guided range of $5.12 per share implies a 13.8% jump from the fiscal 2022 figure of $4.50.
For the third quarter of fiscal 2023 (ending June 2023), management estimates net revenues of $750-$800 million and adjusted earnings of $1.15-$1.20 per share.
The acquisition of RPS group is expected to contribute additional net revenue of approximately $150-$175 million in the fiscal third quarter and $450-$500 million for fiscal 2023. However, its impact on adjusted EPS, excluding acquisition, integration and intangible amortization expenses, is expected to be neutral for the fiscal third quarter and fiscal 2023.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
VGM Scores
At this time, Tetra has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. 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 #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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Tetra Tech, Inc. (TTEK) : Free Stock Analysis Report
