After a bumpy 2005 due to a restructuring process that began the previous year, resource management consultant Tetra Tech Inc.'s income statement is starting to come out from under water.
The Pasadena-based engineering and technical services firm reported $9 million in earnings in its second quarter, compared to a $124 million loss a year ago as the company exited what was considered a more risky business line.
And the market has taken notice, with the company's share price rising 32 percent over the past 52 weeks, closing at $17.87 on July 5.
Tetra Tech, whose resum & #233; includes work on the Los Angeles River Revitalization Master Plan program and watershed management programs in the Chesapeake Bay, Great Lakes, and Sacramento/San Joaquin River Delta, is increasingly targeting contracts in the higher-profile defense and homeland security markets.
In April, for example, the company said it had been awarded a $20.1 million contract to provide base realignment and closure technical support and environmental services, including work at the San Francisco Bay's Hunters Point Naval Shipyard. A month later came announcement of $40 million worth of U.S. defense contracts to construct and renovate facilities for the Iraqi Army and Iraqi national police. Earlier in the year the company won a $216 million contract to assist with clearing unexploded bombs and other ordnance in Iraq.
Jefferies & Co. Inc. analyst Matthew McKay noted that after spending much of last year on restructuring activities, Tetra Tech now appears focused on "big picture" issues, such as evaluating potential acquisition targets to strengthen its capabilities in the core water resources market, as well as growing business in the systems support and security markets.
"Tetra Tech is emerging as a much healthier, more scalable and efficient business that should win more than its fair share of awards due to industry-leading service quality," said McKay in a research note, noting that the company is well positioned to capture post-Katrina and post-Iraq war reconstruction contracts, as well other military work.
Founded in the mid-1960s to provide engineering services related to waterways, harbors and coastal areas, Tetra Tech diversified into water quality, environmental, and infrastructure work. It's considered the nation's leading water technical services firm, and competes with Los Angeles-based Jacobs Engineering Group Inc. and Windsor, Conn.-based TRC Companies Inc. in other markets.
Around 46 percent of its contracts are from the federal government, with state and local governments comprising 19 percent of business and commercial clients another 35 percent. Among its biggest clients are branches of the U.S. Department of Defense, the U.S. Environmental Protection Agency, the Federal Aviation Administration and the U.S. Department of Energy. Major corporate clients include Lockheed Martin Corp. and General Motors Corp.
Starting two years ago, management decided to consolidate certain operations in its wired communications and civil infrastructure businesses, including closing offices, reworking less profitable contracts and dumping bad lease arrangements. Last year, the company got entirely out of the wireless communications market it had entered in the early 2000s. Lost revenue and shutdown-related severance costs resulted in significant charges over several quarters, including a nearly $38 million loss in the second quarter of 2005.
Last year also saw the beginning of a changing of the top guard with the recruiting of both new blood and company veterans. Li-San Hwang, who had been with the company since its early years, retired in November as chief executive and was succeeded by chief operating officer Dan Batrack, who has been with the company 25 years. The board in March decided to formally separate the chief executive and chairman posts by electing Albert Smith, a Lockheed Martin executive who became a director in May 2005, as chairman to succeed Hwang.
Over the next 12 months, management said it will focus on increasing organic growth into the mid-single digits and increasing operating margins to about 10 percent. Over the long term, the company wants to grow its top line annually at approximately 15 percent, with about half of that coming from organic growth, and half of it from acquisitions. Longer term, it also plans to expand internationally, where it now has a very small presence.
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