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Tetra (TTEK) Up 5.2% Since Last Earnings Report: Can It Continue?

Zacks Equity Research
·4-min read

A month has gone by since the last earnings report for Tetra Tech (TTEK). Shares have added about 5.2% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Tetra Tech Q2 Earnings and Revenues Surpass Estimates

Tetra Tech, Inc. reported better-than-expected results for second-quarter fiscal 2022 (ended March 2022). Earnings beat the Zacks Consensus Estimate by 8.9%, marking the 19th consecutive quarter of delivering a surprise. Sales also surpassed estimates by 5.8%.

Tetra Tech’s adjusted earnings per share in the reported quarter were 98 cents, surpassing the Zacks Consensus Estimate of 90 cents. Quarterly earnings expanded 18% from the year-ago quarter’s reported figure of 83 cents.

The bottom line also surpassed management’s projection of 86-91 cents per share.

Revenue & Segmental Performance

In the fiscal second quarter, Tetra Tech generated adjusted revenues of $853 million, reflecting a year-over-year increase of 13%. Adjusted net revenues (adjusted revenues minus subcontractor costs) were $700 million, up 12.3% year over year. The quarterly top line came above management’s guidance of $620-$670 million.

Tetra Tech’s revenues exceeded the Zacks Consensus Estimate of $662 million.

Backlog at the end of the quarter was $3,610.2 million, up 15% year over year.

Revenues from the U.S. Federal customers (accounting for 27% of the quarter’s revenues) were up 2% year over year. The U.S. Commercial sales (21% of the quarter’s revenues) increased 14% year over year on higher environmental programs.

The U.S. State and Local sales (18% of the quarter’s revenues) increased 25% on strength across municipal infrastructure. International sales (34% of the quarter’s revenues) increased 29% year over year, backed by strength in Government and commercial segments.

Tetra Tech reports revenues under the segments discussed below:

Net sales of Government Services Group were $338 million, up 9% year over year. Revenues from Commercial/International Services Group totaled $362 million, underlining a year-over-year increase of 25%.

Margin Profile

In the fiscal second quarter, Tetra Tech’s subcontractor costs totaled $153.1 million, reflecting a fall of 1.2% from the year-ago quarter’s level. Other costs of revenues were $564.5 million, up 15.8%. Selling, general and administrative expenses were $60.7 million, up 17.4% from the year-ago quarter’s figure.

Operating income (adjusted) in the reported quarter increased 22.9% year over year to $74.5 million, while the adjusted margin expanded 60 basis points to 10.7%.

Balance Sheet and Cash Flow

Exiting the fiscal second quarter, Tetra Tech had cash and cash equivalents of $194.3 million, down 5.5% from $205.5 million recorded at the end of the prior quarter. Long-term debt decreased 3.8% sequentially to $237.5 million.

In the quarter, Tetra Tech generated net cash of $177.5 million from operating activities compared with $157.4 million in the year-ago quarter. Capital expenditure was $5.6 million, up 30.2% year over year. In the said period, TTEK’s proceeds from borrowings amounted to $141.5 million, while repayments totaled $105.8 million.

Shareholder-Friendly Policies

Tetra Tech bought back shares worth $100 million and distributed dividends totaling $21.6 million in the first six months of fiscal 2022.

Outlook

For fiscal 2022 (ending September 2022), Tetra Tech anticipates net revenues of $2.72-$2.82 billion, higher than $2.65-$2.80 billion expected previously. Adjusted earnings are predicted to be $4.30-$4.40, up from the previously guided range of $4.15-$4.30.

For the third quarter of fiscal 2022 (ending June 2022), management estimates net revenues of $665-$715 million and adjusted earnings per share of $1.00-$1.05.

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How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

Currently, Tetra has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, 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 B. 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.


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