A month has gone by since the last earnings report for Tetra Tech (
TTEK Quick Quote TTEK - Free Report) . Shares have added about 3.7% 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 Q3 Earnings and Sales, Ups View
Tetra Tech reported better-than-expected results for the third quarter of fiscal 2020 (ended Jun 28, 2020), with earnings surpassing estimates by 6.9%. This was the 12th consecutive quarter of impressive results.
The company’s adjusted earnings per share in the reported quarter were 78 cents, surpassing the Zacks Consensus Estimate of 73 cents. Also, its earnings declined 12.4% from the year-ago quarter’s 89 cents on weak sales generation, partially offset by lower costs and expenses.
Also, the bottom-line results fared well compared with the company’s guidance of 72-75 cents per share.
Revenues & Segmental Performance
In the reported quarter, Tetra Tech generated adjusted revenues of $709.7 million, reflecting a year-over-year decline of 14%. Alternatively, adjusted net revenues (adjusted revenues minus subcontractor costs) were $560.3 million, reflecting a decline of 10.1% from the year-ago quarter and in line with the higher-end of the company’s guidance of $540-$560 million.
Further, its revenues surpassed the Zacks Consensus Estimate of $556.1 million by 0.8%.
Backlog at the end of the quarter was $3,066.6 million, reflecting growth of 2.6% from the previous quarter.
Revenues from the U.S. Federal customers (accounting for 31% of the quarter’s revenues) were flat year over year. Growth in federal IT businesses was more than offset by a delay in international development projects.
However, U.S. Commercial sales (25% of the quarter’s revenues) declined 7% year over year due to lower industrial programs. Stability was witnessed in regulatory-driven programs.
The U.S. State and Local sales (14% of the quarter’s revenues) increased 5% on strength in water infrastructure business and higher revenues from operational technology. International sales (30% of the quarter’s revenues) improved 3% year over year.
The company reports revenues under the segments discussed below:
Net sales of Government Services Group were $319.2 million, down 9.5% year over year.
Revenues from Commercial / International Services Group totaled $241 million, reflecting a year-over-year decline of 11%. Margin Profile
In the reported quarter, Tetra Tech’s subcontractor costs totaled $149.5 million, reflecting a decline of 26.2% from the year-ago quarter. Other costs of revenues were $445.9 million, down 11.7% year over year. Selling, general and administrative expenses were $50.8 million, down 4.4% year over year.
Adjusted operating income in the reported quarter decreased 8.8% year over year to $59.6 million, while adjusted margin increased 10 basis points year over year to 10.6%.
Balance Sheet and Cash Flow
Exiting the fiscal third quarter, Tetra Tech had cash and cash equivalents of $141.7 million, up 4.9% from $135 million recorded at the end of the last reported quarter. Long-term debt was down 20.5% sequentially to $264.7 million.
During the first three quarters of fiscal 2020, the company’s proceeds from borrowings amounted to $298.4 million, while repayments totaled $297.9 million.
In the first nine months of fiscal 2020, it generated net cash of $194.6 million from operating activities, reflecting an increase of 71.6% from the prior-year comparable period. Capital expenditure was $9.4 million, down 6.4% year over year.
During the first three quarters of fiscal 2020, the company bought back shares worth $102.2 million and distributed dividends totaling $25.6 million.
Exiting the fiscal third quarter, the company has $223 million worth authorization left under its approved buyback programs.
For fiscal 2020 (ending September 2020), Tetra Tech anticipates net revenues of $2.32-$2.36 billion, while adjusted earnings are predicted to be $3.13-$3.18. The earnings projection is higher than the previously mentioned $3.05-$3.13.
For the fiscal fourth quarter (ending September 2020), the company anticipates net revenues of $560-$600 million and adjusted earnings per share of 78-83 cents. Tax rate is expected to be 24%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
At this time, Tetra has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Tetra has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.