Tetra Tech Inc. (TTEK) reported its third-quarter fiscal 2011 earnings per share of 38 cents, above the Zacks Consensus Estimate of 35 cents and the prior-year earnings of 33 cents.
The company witnessed a strong demand for its water, mining, and energy services, which led to an increase in revenue and earnings, above the company’s expectation.
Total Revenue
Total revenue in the quarter was $673.8 million, an increase of 19.8% year over year. Revenue, net of subcontractor costs, was $480.5 million compared with $370.1 million in the prior-year quarter. Subcontractor cost in the quarter was $193.3 million compared with $192.2 million.
Backlog was $1.88 billion, up 11.8% compared with $1.68 billion at the end of the year-ago period.
Income
Operating income in the quarter amounted to $39.4 million compared with $32.7 million in the prior-year quarter.
Cash Flow
Tetra Tech generated cash from operations of $55.8 million compared with $24.5 million in the prior-year period.
Outlook
The company expects diluted earnings per share to be in the range of 38 cents to 41 cents in the fourth quarter of fiscal 2011. Revenue, net of subcontractor cost, is expected to be in the range of $460 million to $480 million in the quarter.
For fiscal 2011, revenue, net of subcontractor cost, is expected to be in the range of $1.78 billion to $1.80 billion and diluted earnings per share are expected in the range of $1.39 to $1.42.
Commercial and international markets were strong performers in the quarter. The company expects to see stability in government markets and growth in commercial and international markets as it moves ahead, aided by the acquisitions made by the company. Recently, contributions from international clients have increased rapidly. In the long term, the company believes international business will become a prime contributor of revenue for the company and will constitute more than 40% of its business.
Demand for state and local government services is cyclical and vulnerable to economic downturns; if the economy weakens, its revenues, profits and its 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. It typically begins at the earliest stage of a project by applying science to problems and developing solutions tailored to clients' needs and resources. Its solutions may span the entire life cycle of the project and 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 (ARCAY.PK), Shaw Group Inc. (SHAW) and URS Corporation (URS).
We currently maintain our Neutral rating on Tetra Tech Inc. with a Zacks #2 Rank (short-term Buy recommendation) over the next one-to-three months.
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