Stock Story -
Consulting and engineering services company Tetra Tech (NASDAQ:TTEK) reported Q2 CY2024 results topping analysts' expectations, with revenue up 36.1% year on year to $1.34 billion. On the other hand, next quarter's revenue guidance of $1.12 billion was less impressive, coming in 2% below analysts' estimates. It made a GAAP profit of $1.59 per share, improving from its profit of $1.12 per share in the same quarter last year.
Is now the time to buy Tetra Tech? Find out by reading the original article on StockStory, it's free.
Tetra Tech (TTEK) Q2 CY2024 Highlights:
- Revenue: $1.34 billion vs analyst estimates of $1.08 billion (24.5% beat)
- EPS: $1.59 vs analyst estimates of $1.56 (2.2% beat)
- Revenue Guidance for Q3 CY2024 is $1.12 billion at the midpoint, below analyst estimates of $1.14 billion
- EPS (GAAP) Guidance for Q3 CY2024 is $1.85 at the midpoint, roughly in line with what analysts were expecting
- EPS (GAAP) Guidance for the full year is $6.26 at the midpoint, roughly in line with what analysts were expecting
- Gross Margin (GAAP): 16.6%, down from 19.1% in the same quarter last year
- Free Cash Flow of $137.1 million, up 38.6% from the previous quarter
- Backlog: $5.23 billion at quarter end, up 19.2% year on year
- Market Capitalization: $11.32 billion
Air and Water ServicesMany air and water services are statutorily mandated or non-discretionary. This means recurring revenues are often earned through contracts, making for more predictable top-line trends. Additionally, there has been an increasing focus on emissions and water conservation over the last decade, driving innovation in the sector and demand for new services. On the other hand, air and water services companies are at the whim of economic cycles. Interest rates, for example, can greatly impact manufacturing or industrial processes that drive incremental demand for these companies’ offerings.
Sales GrowthA company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one tends to grow for years. Over the last five years, Tetra Tech grew its sales at an exceptional 14.1% compounded annual growth rate. This is encouraging because it shows Tetra Tech's offerings resonate with customers, a helpful starting point.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Tetra Tech's annualized revenue growth of 26.1% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.
We can dig further into the company's revenue dynamics by analyzing its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Tetra Tech's backlog reached $5.23 billion in the latest quarter and averaged 18% year-on-year growth over the last two years. Because this number is lower than its revenue growth, we can see the company fulfilled orders at a faster rate than it added new orders to the backlog. This implies Tetra Tech was operating efficiently but raises questions about the health of its sales pipeline.
This quarter, Tetra Tech reported wonderful year-on-year revenue growth of 36.1%, and its $1.34 billion of revenue exceeded Wall Street's estimates by 24.5%. The company is guiding for revenue to rise 5.4% year on year to $1.12 billion next quarter, slowing from the 43.6% year-on-year increase it recorded in the same quarter last year. Looking ahead, Wall Street expects revenue to remain flat over the next 12 months, a deceleration from this quarter.
Operating Margin Tetra Tech has managed its expenses well over the last five years. It demonstrated solid profitability for an industrials business, producing an average operating margin of 10.3%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it's a show of well-managed operations if they're high when gross margins are low.
Looking at the trend in its profitability, Tetra Tech's annual operating margin rose by 2.2 percentage points over the last five years, as its sales growth gave it operating leverage.
In Q2, Tetra Tech generated an operating profit margin of 9.6%, in line with the same quarter last year. This indicates the company's cost structure has recently been stable.
EPSWe track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
Tetra Tech's EPS grew at a solid 11.5% compounded annual growth rate over the last five years. Despite its operating margin expansion during that time, this performance was lower than its 14.1% annualized revenue growth. This tells us non-fundamental factors affected its ultimate earnings.
Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. Tetra Tech's two-year annual EPS growth of 5.7% was subpar and lower than its 26.1% two-year revenue growth.
In Q2, Tetra Tech reported EPS at $1.59, up from $1.12 in the same quarter last year. This print beat analysts' estimates by 2.2%. Over the next 12 months, Wall Street expects Tetra Tech to grow its earnings. Analysts are projecting its EPS of $5.41 in the last year to climb by 30.6% to $7.06.
Key Takeaways from Tetra Tech's Q2 Results We were impressed by how significantly Tetra Tech blew past analysts' revenue and backlog expectations this quarter. On the other hand, its revenue guidance for next quarter was underwhelming, but we still think this was a really good quarter that should please shareholders. The stock traded up 5.1% to $225 immediately after reporting.
