Tetra Tech Q3 Earnings Miss on Weak RCM Business, Guides Low

Tetra Tech Inc (TTEK) reported fiscal third-quarter 2014 earnings of 41 cents per share that came a penny below the Zacks Consensus Estimate. However, the earnings marked a significant improvement from the prior-year quarter loss of 47 cents a share.

The year-over-year growth was driven by the absence of charges related to the Remediation and Construction Management (RCM) segment for its fixed-price construction projects that impacted the prior-year quarter earnings. This apart, in the third-quarter of 2013, the company was also impacted by the goodwill impairment charges that did not occur in this quarter.

Total revenue increased 2.3% to $629.5 million from $614.8 million in the prior-year period. Revenues, net of subcontractor costs, were $458.8 million as compared with $475.1 million in the year-earlier quarter. Total revenue was well ahead of the Zacks Consensus Estimate of $492 million.

Revenues benefited from the strength in the company’s front-end Engineering and Consulting Services and Technical Support Services segments, which together contributed about 80% of the company’s total revenue.

Backlog levels increased 6% sequentially and 1.6% year over year to $1.9 billion in the quarter.

Other Financial Details

Tetra Tech’s cash from operations for the quarter was $58.1 million, up from $53.3 million in the comparable prior-year period.

Tetra Tech also intends to buyback all of the remaining $53 million (as on Jun 29, 2014) of the existing $100 million share repurchase authorization by the end of this fiscal year.

Outlook

Following the earnings release, management provided guidance for the fourth quarter and updated its guidance for full-year 2014.

Tetra Tech expects earnings for the fourth quarter of fiscal 2014 in the range of 30–40 cents a share. Revenues, net of subcontractor costs, for the fourth quarter, are expected to range from $450 million to $500 million.

For fiscal 2014, Tetra Tech lowered its earnings guidance. Earnings per share are expected in the band of $1.61–$1.71 as compared with the prior projection of $1.75–$1.85. Revenues, net of subcontractor costs, for fiscal 2014, are expected in the range of $1.85–$1.9 billion, down from $1.9–$2.0 billion forecasted earlier.

The Zacks Consensus Estimate for the fourth quarter and fiscal 2014 earnings per share is currently pegged at 49 cents and $1.80 respectively.

The company is also planning an operational review of its RCM business, which continues to be sluggish owing to the unfavorable conditions in the construction market. Following the evaluation, Tetra Tech expects to initiate a transformation process aimed at reducing risks and augmenting margins in the fourth quarter. The company has not included the impact of RCM operational review in the guidance provided this quarter.

Zacks Rank

Currently, Tetra Tech has a Zacks Rank #3 (Hold). Some other stocks that warrant a look in the pollution control industry include Metalico Inc. (MEA), Progressive Waste Solutions Ltd. (BIN) and Ingersoll-Rand Plc (IR). All three stocks carry a Zacks Rank #2 (Buy).