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Tetra (TTEK) Up 0.2% Since Last Earnings Report: Can It Continue?

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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 0.2% 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 catalysts.

Tetra Tech Q4 Earnings and Revenues Beat Estimates

Tetra Tech kept its earnings beat streak alive in the fourth quarter of fiscal 2019 (ended September 29, 2019), with earnings surpassing estimates by 3.53%.

The company’s adjusted earnings per share in the reported quarter were 88 cents, surpassing the Zacks Consensus Estimate of 85 cents. Also, its earnings grew 17.3% from the year-ago quarter’s 75 cents on strengthening businesses related to environmental, disaster response, renewable energy and other businesses.

For fiscal 2019, the company’s adjusted earnings per share were $3.17, up from the year-ago figure of $2.64.

Revenues & Segmental Performance

In the reported quarter, Tetra Tech generated adjusted revenues of $853.9 million, reflecting year-over-year growth of 14.3%. Alternatively, adjusted net revenues (adjusted revenues minus subcontractor costs) were $640.2 million, reflecting growth of 13.6% from the year-ago quarter.

Further, the company’s revenues surpassed the Zacks Consensus Estimate of $629 million by 0.22%.

Backlog at the end of the quarter was $3,092 million, reflecting growth of 16.1% from the year-ago figure.

Revenues from the U.S. federal customers (accounted for 28% of the quarter’s revenues) rose 8% year over year on growth in environmental and water programs. Conversely, U.S. commercial sales (23% of the quarter’s revenues) grew 1% year over year, driven by an increase in the U.S. renewable energy business. Also, the U.S. state and local sales (17% of the quarter’s revenues) rose 31% on growth in disaster response & recovery planning as well as the broad-based infrastructure business. International sales (32% of the quarter’s revenues) improved 21% on growth in renewable energy and UK environmental businesses.

The company reports revenues under the segments discussed below:

Net sales of Government Services Group were $357.5 million, up 15% year over year. This improvement was driven by healthy growth in disaster response and recovery planning, and broad-based environmental and water programs.

Revenues from Commercial / International Services Group totaled $282.7 million, reflecting year-over-year growth of 11.8%. Results were driven by healthy growth in environmental consulting in the U.K. and the strengthening of renewable energy sales in North America.

For fiscal 2019, the company’s adjusted net revenues were $2,406.1 million, reflecting growth of 8.9% from the previous year.

Operating Margin

In the reported quarter, Tetra Tech’s subcontractor costs totaled $213.8 million, reflecting growth of 14.6% from the year-ago quarter. Other costs of revenues were $532.7 million, up 14.9% year over year. Selling, general and administrative expenses were $55.2 million, up 25.9% year over year.

Adjusted operating income in the reported quarter grew 5.1% year over year to $65 million, while adjusted margin declined 80 basis points year over year to 10.2%.

Balance Sheet and Cash Flow

Exiting the fiscal fourth quarter, Tetra Tech had cash and cash equivalents of $120.7 million, up 8.6% from $111.2 million recorded at the end of the last reported quarter. Long-term debt was down 18.6% sequentially to $263.9 million.

In fiscal 2019, the company generated net cash of $208.5 million from operating activities, 12.3% above the previous year. Capital expenditure was $16.2 million, up from $9.7 million in fiscal 2018.

During the year, the company bought back shares worth $100 million and distributed dividends totaling $29.7 million. It had $125-million authorization left under the share buyback program at the end of the fiscal fourth quarter.

Outlook

For fiscal 2020 (ending September 2020), Tetra Tech anticipates sales from U.S. federal clients to increase 5-10%, driven by growth in the U.S. federal budget. It expects sales from U.S. commercial clients to grow 3-8% on gains from green building design and environmental services.

Also, it anticipates that U.S. state and local sales will increase 10-15% on strengthening disaster recovering and municipal water infrastructure businesses. It expects international sales growth of 7-12%, driven by environmental and infrastructure programs.

For fiscal 2020, the company anticipates net revenues of $2.4-$2.6 billion while adjusted earnings are predicted to be $3.35-$3.55 per share. For the fiscal year, it expects effective tax rate of 23%.

For the fiscal first quarter (ending December 2019), the company anticipates net revenues of $600-$640 million and earnings per share of 75-80 cents.

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, 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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