Tetra Tech's (TTEK) Q4 Earnings In Line, Revenues Beat

In its fourth-quarter fiscal 2016 results, Tetra Tech Inc. (NASDAQ:TTEK) reported adjusted earnings from ongoing operations of 59 cents, in line with the Zacks Consensus Estimate. Earnings were also within the company’s earlier guided range of 55-60 cents.

The technical services company fared betteryear-over-year, with adjusted earnings reflecting an impressive growth of 18% relative to the prior-year quarter’s tally of 50 cents. The company’s earnings benefited from a strong top-line growth. Also, operating efficiency, resulting from cost-management initiatives, proved conducive to the earnings growth.

For fiscal 2016, the company’s ongoing earnings per share came in at $1.88, within the guided range of $1.85–$1.90 and up a robust 17% from the year-ago tally, on the back of impressive sales performance.

Inside the Headlines

Net revenue rose an impressive 24% year over year to $530.8 million, comfortably beating the Zacks Consensus Estimate of $520 million. It was well within the company’s estimated range of $500-500 million. Moreover, Tetra Tech’s ongoing revenues grew 25% year over year.

The top line was driven by the expansion of U.S. Federal, municipal and international development projects. Primarily, strong performance of Water, Environment and Infrastructure segment supplemented the quarterly sales performance.

For fiscal 2016, the company’s net revenues came in at $1.91 billion, up 13% over the prior year and within the guided range of $1.9–$2 billion. In addition, revenues from ongoing operations rose an impressive 14% to $2.53 billion on a year-over-year basis.

Water, Environment and Infrastructure revenues grew 14.0% year over year to $216 million. This segment mainly benefited from strong U.S. federal and Infrastructure projects.

Also, net revenue from Resource Management and Energy inched up 1% year over year to $234.0 million. While international development projects drove the sales performance, sluggish oil and gas markets restricted top-line growth.

In the quarter under review, total backlog from ongoing operations reached a record high of $2.8 billion, a remarkable jump of 25% year over year, driven by a number of single-award contracts from USAID and DoD. Also, ongoing operating income was up 14% year over year to $52 million.

Noteworthy Awards

During the quarter, Tetra Tech won a $125 million, single-award contract from U.S. Agency for International Development (“USAID”) to provide comprehensive architecture-engineering services to USAID/Afghanistan. The company also secured a $200 million single-award contract from Naval Facilities Engineering Command (NAVFAC) Atlantic to provide environmental engineering support services to installations within the NAVFAC Atlantic Area of Responsibility.

Subsequent to the end of the quarter, Tetra Tech managed to bag some major awards that will boost its revenues for the upcoming quarters. For instance, the company was among one of the seven contractors, to have been selected by the U.S. Army Corps of Engineers, Engineering and Support Center, Huntsville, for a $400-million multiple-award contract.

Tetra Tech’s joint venture with Sealaska Technical Services also clinched a new contract from the U.S. Department of Energy. The $400-million contract, which will run for seven years, will be shared with this joint-venture partner.

The company won two major contracts from USAID subsequent to the quarter end. This includes a $40-million single-award contract to achieve universal access to climate-resilient water and sanitation services and a $29-million single-award contract to establish improved water supply, sanitation, and hygiene in countries within sub-Saharan Africa and Southeast Asia.

Liquidity & Cash Flow

At the end of the quarter on Oct 2, 2016, Tetra Tech’s cash and cash equivalents were $160.4 million, up from $135.3 million a year ago. Long-term debt was $331.5 million, substantially up from $181 million as of Sep 27, 2015.

For fiscal 2016, the company’s cash generated from operations fell 12.8% year over year to $142.0 million.

Share Repurchase

Tetra Tech is strongly committed toward rewarding its shareholders through dividends and share buyback programs. Previously, the company had launched a repurchase program with a gross value of $200 million, which it completed during the fourth quarter. Additionally, the company authorized another new program to repurchase up to $200 million of common stock.

TETRA TECH NEW Price, Consensus and EPS Surprise

Outlook

Concurrent with the quarterly earnings release, Tetra Tech provided top- and bottom-line guidance for both the upcoming quarter and fiscal 2017. The company expects first-quarter fiscal 2017 earnings per share to be in the range of $0.44–$0.48. Net revenue for the fiscal first quarter is expected to lie within $450–$475 million.

For fiscal 2017, Tetra Tech projects earnings per share to be in the range of $2.00–$2.20 and net revenue lie within $2.0–$2.1 billion.

Our Take

Tetra Tech ended the quarter on a high note, with impressive top and bottom-line performance and sturdy year-over-year growth. Going forward, the company’s robust backlog levels signal bright days ahead. Moreover, its diligent restructuring initiatives, such as the winding down of Remediation and Construction Management, to focus on high-growth businesses are proving conducive to top-line growth.

In addition, the company’s earlier acquisition of leading consulting and engineering firm – Coffey International – based in Sydney has proved to be one of the strongest profit churners. We believe that thriving end markets, including water, environment, and infrastructure and energy; sound financial health; and solid backlog levels will continue to act as strong tailwinds. This will stoke growth of the Zacks Rank #2 (Buy) company over the long term.

Other Stocks to Consider

Other favorably placed stocks in the broader sector include AO Smith Corp. (NYSE:AOS) , II-VI Inc. (NASDAQ:IIVI) and Applied Industrial Technologies Inc. (NYSE:AIT) . All three companies sport the same Zacks Rank as Tetra Tech.

AO Smith has a robust earnings beat history, with an average positive earnings surprise of 5.4% over the trailing four quarters, beating estimates all through.

Applied Industrial Technologies has managed to beat estimates thrice over the trailing four quarters and has a positive earnings surprise of 4.9%.

II-VI Incorporated has registered a remarkable positive average surprise of over 39.8% over the four trailing quarters, driven by four strong consecutive beats. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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