Tetra Tech Inc.(TTEK) goes ahead with the strategic operational review of its Remediation and Construction Management (“RCM”) segment. The segment has been facing persistent sluggishness owing to the unfavorable conditions in the construction market.
As part of its restructuring endeavors, the company has decided to exit the high-risk, low-return non-core construction markets while retaining businesses like environmental remediation, pipeline, solid waste and utilities.
Although non-core construction markets contributed about 50% of the segment’s total revenues in the year, they did not add to the cash flow generation of the company. Also, the fixed-price nature of the contracts was proving to be a headwind for the company.
Apart from these, Tetra Tech will also continue its work as a construction manager, either single handedly or in collaboration, to provide turn-key solutions for its customers.
Post the restructuring, the primary RCM business will be absorbed by other two segments of the company, namely, the Engineering and Consulting Services and the Technical Support Services. The transition is expected to be completed by the beginning of fiscal 2015.
Revenue, net subcontractor expenses, will be trimmed by approximately 5%–10% from fiscal 2014 owing to the strategic review.
Tetra Tech is positioning itself suitably to leverage its strength in the front-end science and engineering technologies. The company expects the restructuring to lead to a significant improvement in both margin and cash flow.
The company also reaffirmed its previously projected earnings guidance of 30–40 cents a share for the fourth quarter of fiscal 2014.
Tetra Tech currently has a Zacks Rank #4 (Sell), owing to the strong downward estimate revisions witnessed after a soft third-quarter 2014 performance. Some better-ranked stocks in the sector include Sharps Compliance Corp. (SMED), Nordson Corporation (NDSN) and IDEX Corporation (IEX). All three stocks carry a Zacks Rank #2 (Buy).
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