It has been about a month since the last earnings report for Tetra Tech (TTEK Quick QuoteTTEK - Free Report) . Shares have added about 7.9% 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 drivers.

Tetra Tech Beats on Q1 Earnings, Raises 2024 Guidance

Tetra Tech reported first-quarter fiscal 2024 (ended Dec 31, 2023) adjusted earnings of $1.40 per share, which surpassed the Zacks Consensus Estimate of $1.35. The bottom line surged 4.5% year over year driven by strong momentum in each of its segments.

The bottom line also surpassed management’s projection of earnings of $1.30-$1.38 per share.

Revenue & Segmental Performance

In the fiscal first quarter, Tetra Tech generated adjusted revenues of $1.2 billion, reflecting a year-over-year increase of 37.3%. Adjusted net revenues (adjusted revenues minus subcontractor costs) were $1.0 billion, up 37.8% year over year. The quarterly top line was in line with the high range of management’s guidance of $950 million -$1.0 billion.

Tetra Tech’s revenues exceeded the Zacks Consensus Estimate of $974 million.

The backlog at the end of the fiscal quarter was $4.7 billion, up 24.2% year over year.

Revenues from U.S. Federal customers (accounting for 30% of the quarter’s revenues) were up 49% year over year, supported by higher demand from the Department of Defense and USAID / Ukraine. U.S. Commercial sales (19% of the quarter’s revenues) increased 10% year over year on higher clean energy permitting and environmental services sales.

U.S. State and Local sales (11% of the quarter’s revenues) increased 16%, due to strength in digital water. International sales (40% of the quarter’s revenues) increased 74% year over year, backed by higher clean energy sales and the RPS acquisition.

Tetra Tech reports revenues under the segments discussed below:

Net sales of the Government Services Group segment were $443 million, up 25% year over year. The Zacks Consensus Estimate for the segment’s revenues was $368 million. Revenues from the Commercial/International Services Group segment totaled $572 million, representing a year-over-year increase of 49%. The consensus estimate for the segment’s revenues was $606 million.

Margin Profile

In the fiscal first quarter, Tetra Tech’s subcontractor costs totaled $213.1 million, reflecting an increase of 34.7% from the year-ago quarter. Other costs of revenues (adjusted) were $824.7 million, up 41.4% from the fiscal first quarter of 2023. Selling, general and administrative expenses were $79.4 million, up 40.6% from the year-ago fiscal quarter.

Operating income (adjusted) in the reported fiscal quarter increased 20.7% year over year to $111.1 million while the adjusted margin decreased 220 basis points to 10.9%.

Balance Sheet and Cash Flow

While exiting first-quarter fiscal 2024, Tetra Tech had cash and cash equivalents of $198.7 million compared with $168.8 million recorded at the end of the fourth quarter of fiscal 2023. Long-term debt was $945.3 million compared with $879.5 million recorded at the end of fourth-quarter fiscal 2023.

In the first three months of fiscal 2024, Tetra Tech generated net cash of $9.2 million from operating activities compared with $25.2 million in the prior fiscal year’s comparable period. Capital expenditure was $3.5 million, down 30.8% year over year. In the said fiscal period, TTEK’s proceeds from borrowings amounted to $125 million while repayments on long-term debt totaled $60 million.

Shareholder-Friendly Policies

Tetra Tech distributed dividends totaling $13.9 million in the first three months of fiscal 2024. This compares favorably with the dividends of $12.2 million distributed in the year-ago fiscal period.

Fiscal 2024 Outlook Raised

For fiscal 2024 (ending September 2024), Tetra Tech anticipates net revenues to be $4.15-$4.30 billion compared with $4.05-$4.25 billion expected earlier. The midpoint of the guided range — $4.22 billion — lies above the Zacks Consensus Estimate of $4.20 billion. Adjusted earnings are predicted to be $5.90-$6.20 per share compared with $5.70-$6.00 per share predicted earlier. The midpoint of the guided range — $6.05— lies above the consensus estimate of earnings of $5.90 per share.

For the second quarter of fiscal 2024 (ending March 2024), management estimates net revenues to be $990 million-$1.04 billion. The midpoint of the guided range — $1.02 billion — is in line with the Zacks Consensus Estimate. Adjusted earnings are projected to be $1.25-$1.35 per share for the fiscal quarter. The midpoint of the guided range — $1.30 — lies below the consensus estimate of earnings of $1.31 per share.

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 nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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

Tetra has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.