Tetra Tech Inc. (TTEK) reported second-quarter 2012 earnings per share from continuing operations of 35 cents, above the Zacks Consensus Estimate of 33 cents and prior-year earnings of 28 cents.
Total Revenue
Total revenue in the quarter was $624.3 million, an increase of 1.9% year over year. Revenue, net of subcontractor costs, was $476.9 million, up 10.8% compared with $430.3 million in the prior-year quarter. Subcontractor cost in the quarter was $147.5 million, down 19.1% compared with $182.3 million in the prior-year quarter.
Backlog was $2.03 billion at the end of the reported quarter, up 2.01% year over year, led by large number of new orders.
Income
Operating income in the quarter amounted to $35.5 million, up 21.5% compared with $29.3 million in the prior-year quarter. Earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 16.2% year over year to $49.2 million.
Cash Flow
Tetra Tech generated cash flow from operations of $33.1 million compared with $33.7 million in the prior-year period.
Outlook
The company expects diluted earnings per share to be in the range of 42 cents to 45 cents in the third quarter of fiscal 2012. Revenue, net of subcontractor cost, is expected to be in the range of $500 million to $540 million in the quarter.
With rising demand for water-related services in international and the US commercial markets from industrial clients, the company raised it fiscal 2012 earnings per share guidance to $1.59 to $1.66. For fiscal 2012, revenue, net of subcontractor cost, guidance was raised to $2.0 billion to $2.1 billion.
However, demand for state and local government services is cyclical and vulnerable to economic downturns; and if the economy weakens, its revenues, profits and financial condition may deteriorate. The company derives a majority of its revenue from government agencies, and any disruption in government funding or in its relationship with those agencies could adversely affect its business.
Tetra Tech Inc. is a leading provider of consulting, engineering, program management, construction and technical services focusing on resource management and infrastructure. It serves clients by providing cost-effective and innovative solutions to fundamental needs for water, environmental and alternative energy services.
Its solutions include applied science, research and technology, engineering, design, construction management, construction, operations and maintenance, and information technology. Major competitors of Tetra Tech are Arcadis NV, Shaw Group Inc. (SHAW) and URS Corporation (URS).
We currently maintain our Neutral rating on Tetra Tech Inc. with a Zacks #3 Rank (short-term Hold recommendation) over the next one-to-three months.
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