Tetra Tech (TTEK) Q1 Earnings & Revenues Beat, Grows Y/Y

Tetra Tech Inc. (NASDAQ:TTEK) delivered first-quarter fiscal 2018 adjusted earnings from ongoing operations of 65 cents, beating the Zacks Consensus Estimate of 52 cents. Earnings were higher than the company’s earlier guided range of 50-55 cents.

The company fared even better year over year, with adjusted earnings up 32.7% from the prior-year quarter’s tally of 49 cents. The company’s earnings benefited from a robust top-line growth on the back of strong demand across its end markets as well as increased work for its U.S. state and local clients.

Inside the Headlines

Net revenues jumped an impressive 11.2% year over year to $544.8 million, comfortably beating the Zacks Consensus Estimate of $511.9 million. Revenues also surpassed the upper end of the company’s estimated range of $500-525 million. Moreover, Tetra Tech’s ongoing revenues recorded an increase of 14% year over year.

Coming to the segments, Government Services Group revenues grew 20.5% year over year to $310 million, primarily driven by strong infrastructure projects.

Net revenues from Commercial / International Services Group increased 1.3% year over year to $233.7 million. Environmental projects contributed to sales growth, which was partially offset by sluggish oil and gas markets.

In the quarter under review, backlog from ongoing operations reached $2.43 billion, a decline of 1.7% year over year. Further, ongoing operating income was up 16% year over year to $49.7 million.

Liquidity

At the end of the quarter, Tetra Tech’s cash and cash equivalents were $173 million, up from $127 million a year ago. Long-term debt was $432.4 million, up from $341.3 million as of Oct 1, 2017.

Share Repurchase

Tetra Tech is highly committed toward rewarding shareholders through dividends and share buyback programs. Earlier, the company had authorized a new program to repurchase up to $200 million of common stock, under which it has $75 million remaining.

Furthermore, on Jan 29, 2018, Tetra Tech declared a quarterly dividend of 10 cents per share payable on Mar 2 to stockholders of record as of Feb 14.

Business Segment Restructuring

Effective from this quarter, the company reshuffled its reportable segments to align operations better. The new Government Services Group ("GSG") segment encompasses operations with U.S. government clients (federal, state and local) and all activities with development agencies. The other segment, Commercial/International Services Group ("CIG"), include activities with U.S. commercial clients and all international activities excluding work performed for development agencies.

Outlook

Concurrent with the quarterly earnings release, Tetra Tech provided revenue and earnings guidance for both the upcoming quarter and fiscal 2018. The company anticipates second-quarter fiscal 2018 earnings per share to be in the range of 48-53 cents. Net revenues for the fiscal second quarter is projected to lie within $490-$515 million.

For fiscal 2018, Tetra Tech projects earnings per share in the band of $2.40-$2.60 on net revenues of $2.1-$2.2 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 solid backlog levels signal bright days ahead. The company has a solid base for future growth, driven by its strong backlog levels, plus a robust pipeline with major government organizations like the U.S. Department of State, U.S. Army Corp. of Engineers and U.S. Air Force awarding it billion-dollar deals.

Moreover the company’s robust financial health and diligent capital deployment strategies have also been supplementing growth momentum. The company’s three-pronged capital deployment initiative which focuses on maintaining a balanced approach between dividends & share repurchases, pursuing strategic acquisitions along with making investments in organic growth is likely to drive growth.

However, sluggish oil and gas markets as well as a highly competitive bidding environment are hurting top-line growth. This apart, the cyclical nature of the key markets and decreased consumer confidence served by the company poses a threat to growth.

Tetra Tech currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks worth considering in the same space include Applied Industrial Technologies, Inc. (NYSE:AIT) , Acco Brands Corporation (NYSE:ACCO) and AptarGroup, Inc. (NYSE:ATR) . While Applied Industrial Technologies sports a Zacks Rank #1 (Strong Buy), Acco Brands and AptarGroup carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Applied Industrial Technologies has an excellent earnings surprise history, surpassing estimates in the trailing four quarters with an average beat of 11.0%.

Acco Brands has an excellent earnings surprise history, exceeding estimates in the trailing four quarters with an average beat of 81.9%.

AptarGroup has posted earning beat in the trailing four quarters. It boasts an average beat of 3.8%.

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