Tetra Tech Beats on Q3 Earnings, Raises 2024 Guidance

Tetra Tech, Inc. TTEK reported third-quarter fiscal 2024 (ended Jun 30, 2024) adjusted earnings of $1.59 per share, which surpassed the Zacks Consensus Estimate of $1.54. The bottom line surged 42% year over year, driven by the strong momentum in each of its segments.

The bottom line also surpassed management's earnings projection of $1.50-$1.55 per share.

Revenue & Segmental Performance

Tetra Tech generated revenues of $1.34 billion, reflecting a year-over-year increase of 11%. Adjusted net revenues (adjusted revenues minus subcontractor costs) were $1.11 billion, up 12% year over year. The quarterly top line surpassed the management's guided range of $1.05-$1.10 billion.

Tetra Tech's adjusted revenues also exceeded the Zacks Consensus Estimate of $1.09 billion.

The backlog at the end of the fiscal third quarter was $5.23 billion, up 19% year over year.

Revenues from U.S. Federal customers (accounting for 30% of the quarter's revenues) were up 34% year over year, supported by higher civilian and defense environmental sales. U.S. Commercial sales (19% of the quarter's revenues) increased 7% year over year, driven by higher renewable energy and environmental remediation sales.

U.S. State and Local sales (11% of the quarter's revenues) increased 8% year over year, driven by strength in advanced water treatment. International sales (40% of the quarter's revenues) were up 5% year over year, backed by increased Canadian and Australian sustainable infrastructure sales.

Tetra Tech reports revenues under the segments discussed below:

Net sales of the Government Services Group segment were $488 million, up 25% year over year. Revenues from the Commercial/International Services Group segment totaled $621 million, representing a year-over-year increase of 4%.

Margin Profile

In the fiscal third quarter, Tetra Tech's subcontractor costs totaled $234.7 million, reflecting an increase of 6% from the year-ago quarter. Other costs of revenues (adjusted) were $886.4 million, up 11% from the fiscal third quarter of 2023. Selling, general and administrative expenses (adjusted) were $94.5 million, up 6.1% from the year-ago fiscal quarter.

Operating income increased 32% year over year to $129 million while the adjusted margin increased 150 basis points to 11.6%.

Balance Sheet and Cash Flow

While exiting the fiscal third quarter, Tetra Tech had cash and cash equivalents of $212.3 million compared with $168.8 million recorded at the end of the fourth quarter of fiscal 2023. Long-term debt was $861.8 million compared with $879.5 million recorded at the end of fourth-quarter fiscal 2023.

In the first nine months of fiscal 2024, Tetra Tech generated net cash of $253.1 million from operating activities compared with $246.1 million in the prior fiscal year's comparable period. Capital expenditure was $11.3 million, down 34.7% year over year. In the said fiscal period, TTEK's proceeds from borrowings amounted to $180 million while repayments on long-term debt totaled $200 million.

Shareholder-Friendly Policies

Tetra Tech distributed dividends totaling $43.3 million in the first nine months of fiscal 2024. This compares favorably with dividends of $38.3 million distributed in the year-ago fiscal period. It repurchased shares worth $12.9 million in the same period.

Fiscal 2024 Outlook Raised

For fiscal 2024 (ending September 2024), Tetra Tech anticipates net revenues to be in the range of $4.27-$4.32 billion compared with $4.21-$4.31 billion expected earlier. Adjusted earnings are predicted to be $6.23-$6.28 per share compared with $6.15-$6.25 predicted earlier.

For the fiscal fourth quarter (ending September 2024), management estimates net revenues to be in the range of $1.09-$1.14 billion. Adjusted earnings are projected to be $1.82-$1.87 per share.

Zacks Rank & Stocks to Consider

TTEK currently carries a Zacks Rank #3 (Hold). Here are some better-ranked stocks from the same space:

Kadant Inc. presently sports a Zacks Rank #1 (Strong Buy).

It has a trailing four-quarter average earnings surprise of 18%.

The Zacks Consensus Estimate for KAI's 2024 earnings has increased 0.2% in the past 60 days.

Flowserve Corporation currently carries a Zacks Rank #2 (Buy). FLS delivered a trailing four-quarter average earnings surprise of 18.2%.

In the past 60 days, the consensus estimate for Flowserve's 2024 earnings has increased 0.8%.

Emerson Electric Co. presently carries a Zacks Rank of 2. The company delivered a trailing four-quarter average earnings surprise of 10.7%.

In the past 60 days, the Zacks Consensus Estimate for EMR's 2024 earnings has increased 0.4%.

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