Tetra Tech, Inc. TTEK reported better-than-expected results for the first quarter of fiscal 2019 (ended December 2018). It pulled off a positive earnings surprise of 12.9%.
The company’s adjusted earnings per share in the reported quarter were 70 cents, surpassing the Zacks Consensus Estimate of 62 cents. Also, the bottom line increased 7.7% from the year-ago quarter’s 65 cents.
Backlog Solid, Revenues Down Y/Y
In the reported quarter, Tetra Tech generated revenues of $717.4 million, reflecting year-over-year decline of 5.6%. Alternatively, net revenues, revenues minus subcontractor costs, were $553 million, reflecting growth of 2% from the year-ago quarter.
However, the top line surpassed the Zacks Consensus Estimate of $560.3 million by 28%.
Backlog at the end of the quarter was $2,793 million, reflecting growth of 15% from the year-ago tally.
Based on customers, revenues from the U.S. Federal (accounted for 28% of the quarter’s revenues) declined 3% year over year due to adverse impacts of partial shutdown of the government. Conversely, the U.S. Commercial sales (25% of the quarter’s revenues) inched up 1% year over year, and the U.S. State and Local sales (17% of the quarter’s revenues) decreased 5%. International sales (30 of the quarter’s revenues) increased 23% on account of growth in infrastructure programs.
The company reports revenues under the segments discussed below:
Net sales of Government Services Group were $303 million, down 2% year over year. Decrease in disaster response was the reason behind the segment’s weak performance.
Revenues from Commercial / International Services Group totaled $250 million, reflecting year-over-year growth of 13%. Results were driven by healthy growth in sustainable infrastructure and the U.S. environmental business.
Margins Improve
In the reported quarter, Tetra Tech’s subcontractor costs totaled $164.1 million, reflecting decline of 23.7% from the year-ago quarter. It represented 22.9% of the quarter’s revenues compared with 28.3% in the year-ago quarter. Other costs of revenues were $454.7 million, up 0.9% year over year and representing 63.4% of the reported quarter’s revenues.
Gross profits improved 4.8% year over year to $98.7 million while margin increased 140 basis points (bps) to 13.8%. Selling, general and administrative expenses were $43 million, down 5.7% year over year, and represented 6% of revenues.
Operating income in the reported quarter increased 14.7% year over year to $55.7 million and margin improved 140 bps to 7.8%.
Balance Sheet and Cash Flow
Exiting the fiscal first quarter, Tetra Tech had cash and cash equivalents of $66.5 million, down 54.5% from $146.2 million recorded at the end of the last reported quarter. Long-term debts were down 6.5% sequentially at $247.6 million.
In the reported quarter, the company used $15.3 million in cash for operating activities versus $57.7 million used in the year-ago quarter. Capital expenditure was $3.9 million, up compared with $2.1 million in the fiscal first quarter of 2018.
During the quarter under review, the company bought back shares worth $25 million and distributed dividends totaling $6.7 million. Notably, the company had $200 million authorization left under its share buyback program at the end of the fiscal first quarter.
A couple of days before the earnings release, the company’s board of directors authorized payment of a quarterly cash dividend of 12 cents per share to shareholders of record as of Feb 13. The payment will be made on Feb 28.
Outlook
Tetra Tech stands to gain from healthy demand for sustainable infrastructure, renewable energy and water services. For the fiscal second quarter (ending March 209) net revenues are anticipated to be $520-$570 million and earnings per share to be 61-66 cents.
For fiscal 2019 (ending September 2019), the company anticipates net revenues of $2.2-$2.4 billion, same as its previous guidance. Sales are projected to grow 2% from the U.S. Federal, 5% from the U.S. Commercial, 10% from the U.S. State and Local, and 10% from International customers.
Earnings per share for the year will likely be $2.80-$2.95, up from $2.75-$2.95 expected earlier. The new projected range excludes the impact of tax benefit recorded in the first quarter of fiscal 2019.
Tetra Tech, Inc. Price, Consensus and EPS Surprise
Tetra Tech, Inc. Price, Consensus and EPS Surprise | Tetra Tech, Inc. Quote
Zacks Rank & Stocks to Consider
With a market capitalization of approximately $2.7 billion, Tetra Tech currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the industry are CECO Environmental Corp. CECE, Heritage-Crystal Clean, Inc. HCCI and Sharps Compliance Corp. SMED. All these stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earnings estimates for CECO Environmental and Heritage-Crystal have remained unchanged for 2019 in the past 60 days while that for Sharps Compliance declined. Notably, earnings surprise in the last quarter was a positive 25% for CECO Environmental, 8% for Heritage-Crystal and 66.67% for Sharps Compliance.
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