Tetra Tech Exceeds Estimates – Analyst Blog

Tetra Tech Inc. (TTEK) reported earnings per share of 23 cents from continuing operations for the second quarter of 2010 on net revenue of $325.9 million. This was higher than the Zacks Consensus Estimate of 22 cents. Operating income was $23.5 million and net income was $14.3 million, compared with $27.8 million and $19.2 million, respectively, for the same quarter last year.

 

Order backlog was $1.67 billion, compared with $1.66 billion at the end of the same quarter last year and $1.61 billion at the end of the prior quarter.

 

For the three and six-month periods, revenue declined compared with the same periods last year due to the completion of large wind energy and Iraq-related contracts, and reduced activity on water and environmental remediation projects for commercial clients. Additionally, the decline was attributable to federal government delays in releasing new awards and reduced workload from many states, local government agencies and commercial clients due to the continuing weakness in the economy. 

 

The overall revenue decline was partially offset by approximately $29 million and $83 million of revenue generated by the prior-year acquisitions for the three- and six-month periods, respectively. The decline was also mitigated by increased activity on BRAC and other federal government programs, as well as revenue growth from a large transportation infrastructure project.

 

New orders were strong for this quarter, which drove backlog growth both sequentially and year over year. Cash generation increased net cash position to more than $100 million, providing a strong balance sheet for future growth. Federal and commercial wind energy construction management awards remained delayed due to the continued sluggishness in federal spending and the commercial market downturn.

 

Operating income decreased partially due to the aforementioned revenue decline. Additionally, operating income declined based on increase in SG&A expenses due to a $0.6 million quarterly and $1.9 million year-to-date increase in amortization expense of intangible assets related to prior-year acquisitions, and increased costs related to business development activities for the six-month period. Further, the prior-year operating income benefited from favorable claim settlements for the six-month period and higher profit margins on certain wind energy, water and telecommunication projects for both periods. The decreases in operating income were partially mitigated by lower contract costs related to regulatory delays, subcontractor issues and project start-up expenses in certain new programs compared with the prior year.

 

Tetra Tech expects diluted EPS for the third quarter of fiscal 2010 to be in the range of 27 to 31 cents. Revenue, net of subcontractor costs, for the third quarter is expected to range from $350 million to $370 million. For fiscal 2010, Tetra Tech expects diluted EPS to be $1.10 to $1.18. Revenue, net of subcontractor costs, for fiscal 2010 is now expected to range from $1.375 billion to $1.425 billion.

 

The company also announced that the Tetra Tech–Pascal & Ludwig Constructors joint venture has been awarded a combined $300 million contract to provide design-build services for wet utilities projects primarily in Southern California. Seven contractors will compete for firm-fixed price task orders under this indefinite delivery/indefinite quantity contract with the Naval Facilities Engineering Command Southwest (“NAVFAC Southwest”). The contract has one base year and four one-year option periods.

This contract includes new construction, renovation, alterations, and repairs in existing water utilities at U.S. Navy and other Department of Defense facilities, including water and sewerage lines, wells, pumping stations, treatment plants, and storage tanks. Individual task orders will range from $500,000 to $20 million.

We currently have a Neutral recommendation on TTEK.