Tetra Tech Inc. (TTEK) recorded another strong quarter performance, reporting earnings per share of 33 cents, above the Zacks Consensus Estimate of 30 cents. The company outperformed its own expectation for the quarter on both top line and bottom line, driven by strong front-end consulting and engineering services to federal and international clients.
 
Earnings per share decreased by 35.2% year over year as the company derived a tax benefit of only 1 cent in the quarter in comparison with 20 cents in the prior-year quarter. Excluding the tax benefit, earnings per share increased by 3.2%.
 
Revenues
 
The company reported gross total revenues of $562.4 million versus $551.4 million in the third quarter of fiscal 2009. Total revenue, net of subcontractor costs, was $370.1 million, above $356.9 million in the prior-year quarter and $365 million as per the Zacks Consensus Estimate.
 
Backlog
 
The company’s backlog increased sequentially to $1.68 billion from $1.67 billion at the end of second quarter of 2009. However, it decreased from $1.7 billion at the end of the third quarter of fiscal 2009.
 
Income
 
Operating income was $32.7 million compared with $32.8 million in third quarter of 2009. Net income was $20.6 million compared with $31 million.
 
Cash Flow
 
The company generated cash from operations of $24.5 million compared with $60.8 million in the same period last year. Last year’s cash from operations included a tax refund of $39.8 million.
 
Acquisition
 
Tetra Tech has entered into a definitive agreement to acquire a Canadian consulting and engineering firm with about $100 million in annual revenue. The acquisition is expected to close in August 2010.
 
Outlook
 
Strong third quarter results led the company to increase its earnings per share and revenue guidance for fiscal 2010. The company expects diluted EPS to be in the range of $1.17 to $1.20 and total revenue, net of subcontractor costs, to be in the range of $1.41 billion to $1.43 billion. The company’s guidance includes expected contributions from the acquisition of the Canadian consulting and engineering firm.
 
For the fourth quarter of 2010, the company expects diluted EPS to be in the range of 31 cents to 34 cents and total revenue, net of subcontractor costs, to be in the range of $370 million to $390 million.
 
The company continues to focus on the strategic acquisition of the firms to enhance its service offerings and expand its geographic presence. However, an exceedingly slow economic recovery will continue to affect the performance of the company.
 
Headquartered in Pasadena, California, Tetra Tech Inc. provides environmental engineering and consultancy services to both government and corporate clients. The company provides about 50% of its management consultancy services to the US Agency for International Development for its various projects worldwide in energy sector. Prime competitors of the company are Arcadis NV (ARCAY), Shaw Group Inc. (SHAW) and URS Corp. (URS).
 
We currently maintain our Neutral rating on Tetra Tech, with a Zacks #4 Rank over the next one-to-three months.
 
 
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