Tetra Tech Posts Strong Q2 Earnings, Guides Up - Analyst Blog

Tetra Tech Inc TTEK reported fiscal second-quarter 2014, ending Mar 30, 2014, earnings of 48 cents per share, beating the Zacks Consensus Estimate of 39 cents. The earnings also marked a significant 26.3% year over year increase from earnings of 38 cents a share in prior-year period.

The growth in bottom line was primarily driven by the company's strong business in the oil and gas, solid waste and industrial water markets. Moreover, the company is focused on streamlining its business portfolio by exiting from the fixed price construction businesses, similar to its recent exit from the U.K. business. Such moves are aimed at reducing cost-overrun risks related to these businesses.

Quarterly Details

Total revenue in the reported quarter increased to $586.3 million from $642.0 million in the prior-year period. Revenues, net of subcontractor costs, were $456.0 million as compared with $521.0 million in the year-earlier quarter. However, revenues were well ahead of the Zacks Consensus Estimate of $494 million.

Backlog was $1.8 billion at the end of the reported quarter, decreasing marginally from the previous quarter's backlog.

Tetra Tech's cash from operations for the six-month period ended Mar 30 was $56.2 million, down from $62.0 million in the comparable prior-year period.

At the end of the quarter, the company had an excess capacity of more than $500 million to fund its dividend and share buyback programs and aid its endeavors in strategic mergers and acquisitions.

Outlook

Following the earnings release, management provided guidance for the third quarter and updated its guidance for full-year 2014.

Tetra Tech expects earnings for the third quarter of fiscal 2014 in the range of 39–44 cents a share. Revenues, net of subcontractor costs, for the second quarter, are expected to range from $475 million to $525 million.

For fiscal 2014, Tetra Tech raised its earnings guidance. Earnings per share are expected in the band of $1.75–$1.85 as compared with the prior projection of $1.60–$1.80. However, revenues, net of subcontractor costs, for fiscal 2014, are expected in the range of $1.9–$2.0 billion, down from $2.1–$2.3 billion forecasted earlier. Revenues are expected to be impacted by the unfavorable currency translation, lower wind revenues and weak order bookings from U.S. government.

Dividend

In the quarter, Tetra Tech, in an effort to share profits with shareholders, initiated a quarterly dividend. Management has approved a dividend of 7 cents per share to be paid on Jun 4, 2014, to stockholders of record as of May 16, 2014. The dividend reflects a yield of 1%.

The company will have to dish out 15% of its free cash flow annually. The company's robust cash generation will cushion the payout.

The company now expects to return as much as 30% of free cash flow to its investors through this dividend and the existing share repurchase program.

Zacks Rank

Currently, Tetra Tech has a Zacks Rank #3 (Hold). Some other stocks that warrant a look in the pollution control industry include Fuel-Tech, Inc. FTEK, Pall Corporation PLL and Pure Cycle Corporation PCYO. While Fuel-Tech sports a Zacks Rank #1 (Strong Buy), Pall Corporation and Pure Cycle Corporation have Zacks Rank #2 (Buy).