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Tetra Tech Inc. (TTEK - Analyst Report) reported its second-quarter fiscal 2011 earnings per share of 28 cents, below the Zacks Consensus Estimate of 29 cents but above the prior-year earnings of 23 cents. The company had a strong second quarter with high double-digit growth in revenue, earnings and backlog.

Total Revenue

Total revenue in the quarter was $612.6 million, an increase of 30.5% year over year. Revenue, net of subcontractor costs, was $430.3 million compared with $325.9 million in the prior-year quarter. Subcontractor cost in the quarter was $182.3 million compared with $143.6 million.

Tetra Tech’s revenue from the international market more than tripled during the quarter due to increased mining activity and contribution from recent acquisitions made in Canada. An improvement in economic environment increased revenue by 14% year over year. Backlog increased 18.7% year over year to $1.99 billion at the end of the reported quarter.

Income

Operating income in the quarter amounted to $29.3 million compared with $23.5 million in the prior-year quarter.

Cash Flow

Tetra Tech generated cash from operations of $33.7 million compared with $45.2 million in the prior-year period.

Outlook

The company expects diluted earnings per share to be in the range of 33 cents to 37 cents in the third quarter of fiscal 2011. Revenue, net of subcontractor cost, is expected to be in the range of $450 million to $475 million in the quarter.

For fiscal 2011, revenue, net of subcontractor cost, is expected to be in the range of $1.7 billion to $1.8 billion and diluted earnings per share are expected to be in the range of $1.34 to $1.42.

Demand for state and local government services is cyclical and vulnerable to economic downturns; if the economy weakens, its revenues, profits and its financial condition may deteriorate. The company derives a majority of its revenue from government agencies, and any disruption in government funding or in its relationship with those agencies could adversely affect its business.

Tetra Tech Inc. is a leading provider of consulting, engineering, program management, construction and technical services focusing on resource management and infrastructure. It serves clients by providing cost-effective and innovative solutions to fundamental needs for water, environmental and alternative energy services. It typically begins at the earliest stage of a project by applying science to problems and developing solutions tailored to clients' needs and resources. Its solutions may span the entire life cycle of the project and include applied science, research and technology, engineering, design, construction management, construction, operations and maintenance, and information technology. Major competitors of Tetra Tech are Arcadis NV (ARCAY.PK), Shaw Group Inc. and URS Corporation (URS - Analyst Report).

We currently maintain our Neutral rating on Tetra Tech Inc. with a Zacks #2 Rank (short-term Buy recommendation) over the next one-to-three months.

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