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Tetra (TTEK) Up 4.3% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Tetra Tech (TTEK - Free Report) . Shares have added about 4.3% 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 Q3 Earnings & Revenue Estimates

Tetra Tech reported better-than-expected results for third-quarter fiscal 2018 (ended June 2018).

Earnings/Revenues

Quarterly adjusted earnings came in at 71 cents per share, up 34% year over year. The bottom line also outpaced the Zacks Consensus Estimate of 65 cents.

Revenues in the fiscal third quarter came in at $570.4 million, up 14.4% year over year. The top line also surpassed the Zacks Consensus Estimate of $541 million.

Segmental Break-Up

Revenues of the Government Services Group in the reported quarter came in at $301 million, up 13.1% year over year.

The Commercial / International Services Group revenues came in at $267.8 million, up 15.7% year over year.

Costs/Margins

Subcontractor costs in the quarter under review were $194.4 million, up from $187.1 million recorded in the year-ago period. Cost of revenues in the fiscal third quarter were $460.8 million, up 12.9% year over year. Gross profit margin in the quarter was 14.3%, up 110 basis points year over year.

Selling, general and administrative expenses during the quarter were $53.9 million, up from $44.4 million recorded in the year-ago quarter. Meanwhile, interest expenses in the June-end quarter flared up 55.5% year over year to $4.3 million. Operating margin in the fiscal third quarter was 7.3%, up 60 bps year over year.

Balance Sheet/Cash Flow

Exiting the fiscal third quarter, Tetra Tech had cash and cash equivalents of $214 million, up from $190 million recorded as of Oct 1, 2017. Long-term debt came in at $419 million, up from $341.3 million reported at the end of fiscal 2017.

In the nine-month period ended fiscal 2018, the company generated $67.4 million cash from operating activities, down from $71.6 million recorded in the comparable period last year. Capital expenditures totaled $6.3 million, down 9.6% year over year.

Outlook

Tetra Tech is poised to boost its near-term revenues and profitability on the back of continued growth in demand across all end-markets. The company currently anticipates reporting revenues of $550-$575 million and earnings of 70-75 cents per share in fourth-quarter fiscal 2018.

Additionally, Tetra Tech has raised its earnings view for fiscal 2018 from $2.50-$2.62 per share to $2.59-$2.64 per share. Also, net revenue guidance for the fiscal is currently pegged at $2.20-$2.22 billion, instead of the prior projection of $2.15-$2.25 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Tetra has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for momentum investors than those looking for value and growth.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Tetra has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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