LKQ NASDAQ: LKQ opened 2026 with what management described as “solid progress” across its operating segments, citing improving trends in North America, sequential demand improvement in Europe, and continued growth in its Specialty business.
On the company’s first-quarter 2026 earnings call, President and CEO Justin L. Jude said the quarter reflected “operating discipline and relentless focus on the things within our control, taking market share, protecting margins, and improving productivity.” Senior Vice President and CFO Rick Galloway added that performance was supported by execution in North America and improving trends through the quarter in Europe, though partially offset by headwinds including fuel, bad debt, and pricing pressure.
First-quarter results and cash flow
Galloway reported first-quarter revenue of $3.5 billion, up 4.3% year-over-year. Diluted EPS was $0.30, which included a $0.17 per share impairment tied to LKQ’s equity method investment in Mekonomen; that impairment was excluded from adjusted results. Adjusted diluted EPS was $0.67, down from $0.74 in the prior-year period.
Free cash flow was negative $96 million versus negative $57 million a year ago, which Galloway attributed to typical first-quarter seasonality and working capital needs, particularly receivables rising from year-end as volumes built through the quarter. He said the company expects first quarter to be a cash use and remaining quarters to generate positive free cash flow.
North America: stabilization signals and alternative parts utilization
In North America, Jude said organic revenue declined 0.5% on a per-day basis, improving from a 4.1% decline in the year-ago first quarter and a 1% decline in the fourth quarter of 2025. He said repairable claims were down approximately 2% to 4%, which management described as a recovery from 2025 levels.
Jude pointed to momentum in the company’s aftermarket collision product line and a record level of alternative parts utilization. He said utilization reached “nearly 40% through February,” and he expected the trend to continue into March.
During Q&A, Jude told Baird analyst Craig Kennison that MSOs tend to be higher utilizers of alternative parts and that LKQ is seeing growth with those customers. He said LKQ renewed several MSO agreements and is integrating ordering capabilities with key partners to improve the “ease and velocity of ordering” and procurement workflows. Jude also said integrations can help automate decision-making around lead times and economics, which can increase volume and alternative parts usage.
Operationally, Galloway said North America results continued to face headwinds from repairable claims and tariffs, with pricing remaining competitive and the company’s ability to fully pass through higher costs constrained. He said LKQ expects EBITDA margins to “normalize on a year-over-year basis” as it laps tariff-related cost increases in the back half of the year.
- North America segment EBITDA margin: 14.1%, down 130 basis points year-over-year but up 140 basis points sequentially.
- North America gross margin: 42.4%, down year-over-year due primarily to tariff pass-through and customer mix, but improved sequentially.
- North America SG&A improved by 90 basis points as a percentage of revenue versus prior year, which Galloway said reflected cost discipline and operating leverage.
Management also discussed industry indicators it views as supportive. Jude said used car values improved every month in the quarter, with March up 6.2%. He said higher used car values can reduce total loss frequency and increase repairable claims. In response to a question from Barclays’ John Babcock, Jude said used car price increases tend to show up quickly in repairable claims because estimates are compared to used vehicle values when determining whether a vehicle is totaled.
Europe: sequential improvement, private label progress, and ERP migration
In Europe, Jude said demand was soft early in the quarter, similar to the fourth quarter, followed by steady month-over-month improvement, with March showing stronger demand. He said Eastern Europe and Germany delivered positive organic revenue growth, while the U.K. and Italy were down year-over-year but improved sequentially.
Financially, Galloway said Europe’s revenue benefited from foreign exchange, but organic volumes remained pressured and top-line pressure flowed through to margins.
- Europe segment EBITDA margin: 7.8%, down 150 basis points year-over-year.
- Europe gross margin: 38.3%, down 50 basis points due to competitive pricing in certain markets and higher input costs.
- Europe SG&A: 30.9% of revenue, up about 80 basis points, with lower volumes and inflation pressuring overhead leverage; productivity and restructuring partially offset the impact.
Jude said LKQ’s private label initiative continued to progress, with volume penetration reaching 25.3% in the quarter versus 25.1% in the fourth quarter. He reiterated an objective of reaching 30% over the coming years. In Q&A with Stephens’ Jeffrey Lick, Jude said the company is using targeted introductory pricing to encourage adoption and expects to “start ratcheting up the prices throughout 2026 with full effect in 2027.” Galloway added that LKQ saw a sequential improvement in overall private label margin from Q4 to Q1.
Jude also provided an update on LKQ’s ERP efforts in Europe, noting the company completed a planned ERP migration in one key market during the first week of April. He said LKQ anticipated temporary sales disruption and reflected it in full-year guidance, but the project was progressing ahead of initial expectations, with “daily improvements in sales levels.” He emphasized the ERP transition is intended to enable process standardization, cost reduction, and progress toward becoming “a seamless Pan-European distributor.”
In response to a question on acquisition activity, Jude described two small European tuck-in acquisitions completed during the quarter. He said one business can repair and remanufacture EV batteries, which LKQ plans to leverage to help train workshops as electric vehicle penetration grows. He said the second acquisition is a remanufacturing business focused on electronic components, enabling LKQ to offer remanufactured components at lower cost than OEM alternatives.
Specialty segment growth, sale process dynamics, and strategic review
LKQ’s Specialty segment posted another quarter of organic growth. Jude said Specialty organic revenue rose 3.4%, marking the third consecutive quarter of positive organic growth, with RV revenue growth “nearly double digits” and strong growth in Marine. Galloway said Specialty EBITDA declined $3 million, primarily due to higher SG&A from $6 million in higher-than-normal credit losses related to a non-trade receivable.
Jude said LKQ’s Specialty sale process continues, with “strong interest from both strategic buyers and financial sponsors,” but noted geopolitical tensions have introduced uncertainty into credit markets and tightened financing terms for some buyers. He told JPMorgan’s Jash Patwa that the company has not shut down the process, but did not provide a new timeline update beyond those dynamics.
Separately, Jude said LKQ has engaged Bank of America Securities and Goldman Sachs to assist the board and management in evaluating “a full range of alternatives” as part of an ongoing strategic review. He said the company is early in the process and investors should not expect an immediate update, while also stating the company is treating the review “with urgency” and that day-to-day operating priorities remain unchanged.
Balance sheet, capital allocation, and reaffirmed guidance
Galloway said LKQ ended the quarter with total debt of $3.9 billion and leverage of 2.6 times EBITDA. He noted a $500 million term loan became current at quarter-end and said the company intends to extend or refinance it before the scheduled maturity date. LKQ’s effective interest rate was 5.0% in the quarter.
The company returned $77 million to shareholders through its dividend and spent $5 million on the two European tuck-in acquisitions. In Q&A with Jefferies’ Bret Jordan, Galloway said LKQ did not repurchase shares in Q1, largely due to expected first-quarter free cash flow and leverage at quarter-end, but said investors should “expect to see share repurchases throughout the rest of the year” at what the company views as a reasonable level, while remaining committed to the dividend.
For 2026, LKQ reaffirmed guidance for organic parts and services revenue, adjusted EPS, and free cash flow. Galloway said the company continues to expect organic parts and services revenue between negative 0.5% and positive 1.5%, adjusted EPS of $2.90 to $3.20, and free cash flow of $700 million to $850 million. He said it remains “too soon” to reflect a meaningful market recovery in the outlook, while reiterating expectations for more than $50 million in annual cost savings, with most of the benefit coming in 2026.
In closing remarks, Jude said management believes the business is undervalued and remains focused on “serving customers, taking share, expanding margins, and converting earnings to cash.”
About LKQ NASDAQ: LKQ
LKQ Corporation is a leading provider of alternative and specialty parts to repair and accessorize automobiles and other vehicles. The company supplies a broad range of replacement components, including recycled original equipment manufacturer (OEM) parts, aftermarket parts, refurbished and remanufactured items. Its products support collision repair, mechanical repair and performance enhancement needs across passenger cars, heavy trucks and recreational vehicles.
Through a combination of in-house operations and strategic acquisitions, LKQ has developed a comprehensive product portfolio that extends beyond core replacement parts.
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