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Why Is Tetra (TTEK) Up 6.7% Since Last Earnings Report?

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It has been about a month since the last earnings report for Tetra Tech (TTEK - Free Report) . Shares have added about 6.7% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Tetra Tech Q3 Earnings & Revenues Top Estimates, Up Y/Y

Tetra Tech reported solid third-quarter fiscal 2021 (ended Jun 27, 2021) results, with earnings surpassing estimates by 9.2%. This was the 16th consecutive quarter of better-than-anticipated results.

The company’s adjusted earnings per share in the reported quarter came in at 95 cents, outpacing the Zacks Consensus Estimate of 87 cents. Earnings increased 21.8% from the year-ago quarter’s 78 cents. The bottom line also topped management’s projection of 85-90 cents per share.

Revenues & Segmental Performance

In the fiscal third quarter, Tetra Tech generated adjusted revenues of $801.5 million, reflecting a year-over-year increase of 12.9%. Adjusted net revenues (adjusted revenues minus subcontractor costs) came in at $638 million, up 13.9%. The figure came within the company’s guidance of $600-$650 million.

Tetra Tech’s revenues also exceeded the Zacks Consensus Estimate of $630 million. Backlog at the end of the quarter was $3,249.9 million, up 3.2% from the previous quarter.

Revenues from the U.S. Federal customers (accounting for 29% of the quarter’s revenues) were up 7% year over year. Revenues increased from growth in advanced analytics and international development projects.

The U.S. Commercial sales (21% of the quarter’s revenues) declined 2% year over year on discretionary industrial programs timing. Stability was witnessed in regulatory-driven programs.

The U.S. State and Local sales (16% of the quarter’s revenues) increased 31% on strength across municipal infrastructure and disaster response. International sales (34% of the quarter’s revenues) increased 26% year over year, backed by strength across commercial discretionary and government projects.

The company reports revenues under the segments discussed below:

Net sales of Government Services Group came in at $356 million, up 12% year over year.

Revenues from Commercial / International Services Group totaled $282 million, underlining a year-over-year increase of 17%.

Margin Profile

In the fiscal third quarter, Tetra Tech’s subcontractor costs totaled $163.6 million, reflecting a rise of 9.4% from the year-ago quarter. Other costs of revenues (adjusted) were $512.3 million, up 14.9%. Selling, general and administrative expenses (adjusted) were $55.9 million, up 10%.

Net income in the reported quarter increased 14.1% year over year to $51.9 million, while adjusted margin expanded 30 basis points to 10.9%.

Balance Sheet and Cash Flow

Exiting the fiscal third quarter, Tetra Tech had cash and cash equivalents of $234.3 million, up 4% from $225.3 million recorded at the end of the prior quarter. Long-term debt was down 1.8% sequentially to $234 million from $238.3 million.

In the first nine months of fiscal 2021, it generated net cash of $226.5 million from operating activities compared with $194.6 million in the year-ago period. Capital expenditure was $6.2 million, down 34%. In the same time frame, the company’s proceeds from borrowings amounted to $165.6 million, while repayments totaled $173.9 million.

Shareholder-Friendly Policies

In the first nine months of fiscal 2021, the company bought back shares worth $45 million and distributed dividends totaling $29.2 million.

Exiting the fiscal third quarter, the company had $163 million worth authorization left under its approved buyback programs.

Outlook

For fiscal 2021 (ending September 2021), Tetra Tech anticipates net revenues of $2.50-$2.55 billion compared with $2.45-$2.55 billion guided earlier, and adjusted earnings are predicted to be $3.69-$3.74 compared with $3.60-$3.70 estimated earlier. The bottom-line projection is higher than the $3.26 recorded in fiscal 2020.

For the fiscal fourth quarter (ending September 2021), the company estimates net revenues of $650-$700 million and adjusted earnings per share of 95 cents to $1.00.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.

VGM Scores

At this time, Tetra has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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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