LKQ Q2 Earnings Call Highlights

Key Points

• Q2 performance weakened: Revenue fell to approximately $3.4 billion from $3.5 billion, while adjusted EPS declined to $0.67 from $0.84. Germany’s ERP implementation reduced quarterly European revenue by an estimated $140 million and Europe EBITDA by roughly $50 million.
• North America showed improvement: Parts and Services returned to organic growth of 0.5%, with aftermarket collision revenue up about 2% and alternative-parts utilization exceeding 40%. Specialty revenue also grew organically by 4.5%, though margin pressures remain.
• LKQ cut its 2026 outlook: The company now expects Parts and Services organic revenue to decline 1%–3%, adjusted EPS of $2.60–$2.90, and free cash flow of $625 million–$775 million. Its strategic review remains active, with Bank of America and Goldman Sachs advising.

LKQ NASDAQ: LKQ reported second-quarter 2026 revenue of approximately $3.4 billion, down from $3.5 billion a year earlier, as disruption from an enterprise resource planning system implementation in Germany weighed on its European operations. Adjusted diluted earnings per share declined to $0.67 from $0.84 in the prior-year quarter.

President and Chief Executive Officer Justin Jude said the quarter fell short of the company’s expectations, but pointed to improving trends in North America and continued organic growth in its Specialty segment. He said the company is reducing its full-year outlook primarily to reflect Europe’s performance while maintaining its long-term strategic priorities.

North America Returns to Organic Growth

North America Parts and Services posted organic revenue growth of 0.5%, its first quarter of growth since 2023, according to Senior Vice President and Chief Financial Officer Rick Galloway. Aftermarket collision revenue rose about 2%, while the company’s Canadian hard-parts business grew in the mid-single digits. Paint remained a headwind to overall growth.

Jude said repairable claims declined by 1% to 3% during the quarter, an improvement from the first quarter. He also cited improving used-car prices and year-over-year declines in insurance consumer price index measures during May and June as factors that could encourage insurers to reduce repair costs through greater use of alternative parts.

Alternative parts utilization exceeded 40% in the quarter, surpassing the previous record set in the first quarter, Jude said. North America also saw salvage gross margin exceed management’s expectations, sequential improvement in fill rates, and free cash flow above expectations.

North America segment EBITDA was $207 million, representing a 14.1% margin. Galloway said the result included a $10 million expense tied to an isolated, one-time legal reserve, which reduced the reported margin by about 70 basis points. Excluding that item, he said underlying segment performance was in the high-14% margin range.

Germany ERP Disruption Pressures Europe

Europe Parts and Services organic revenue fell 12.6%, with the Germany ERP conversion serving as the primary driver. LKQ estimated that the disruption reduced quarterly revenue by about $140 million and lowered Europe segment EBITDA by roughly $50 million.

Europe segment EBITDA totaled $109 million, down $42 million year over year, for a 7.5% margin. In addition to the German ERP issues, Galloway said softer demand in the United Kingdom and Benelux markets reduced EBITDA by about $30 million.

Jude said the ERP implementation initially experienced system stability problems, including slowness and system crashes. After those issues were stabilized in late April, the company encountered data and process issues as revenue volumes increased. He said system performance has since improved, operational processes have normalized, and the German business finished the most recent week above 85% of its normal revenue run rate.

The company expects to reach approximately 100% of its German revenue run rate by the end of the year, though management acknowledged that recovery would be gradual through the second half. The low end of LKQ’s updated guidance assumes a more status quo outcome for the ERP recovery, Galloway said.

Jude described the conversion as a “scaling event” that expanded the share of LKQ’s European business operating on a common platform from about 5% to more than 30%. The company has no further ERP conversions scheduled for 2026, he said, while future conversions planned for next year are expected to involve smaller operations and benefit from lessons learned during the German deployment.

Outside Germany, LKQ cited heightened competition in the U.K. and lower volumes in Benelux. Jude said the company exited some low-margin three-step customer business in Benelux while seeking to increase two-step business. Across Europe, LKQ generated more than $40 million of year-over-year improvement through cost optimization, procurement savings, productivity gains and closures of underperforming locations.

Specialty Growth Continues, Margin Work Remains

Specialty organic revenue increased 4.5% in the quarter, while segment EBITDA was $33 million and margin was 6.7%. Management said freight and fuel costs, gross margin and sales mix remained areas requiring improvement.

Galloway said Specialty’s margin was also affected by an $8 million non-cash credit-loss reserve associated with a vendor that LKQ acquired during the quarter. He said it was the same vendor that had contributed to credit losses in the first quarter, and that the issue is now behind the company.

In Europe, private-label volume penetration reached 26.6%, advancing toward LKQ’s longer-term target of 30%. Jude said the company recorded a slight increase in private-label pricing and margins during the quarter.

Outlook Reduced; Strategic Review Continues

LKQ lowered its 2026 outlook, now expecting organic Parts and Services revenue to decline between 1% and 3%. The company forecast adjusted diluted earnings per share of $2.60 to $2.90, down from its prior range of $2.90 to $3.20.

The company also reduced its full-year free-cash-flow outlook to $625 million to $775 million from a previous range of $700 million to $850 million. Second-quarter operating cash flow was $111 million and free cash flow was $60 million. LKQ ended the quarter with $1.9 billion in total liquidity and net leverage of 2.8 times EBITDA.

During the quarter, LKQ returned $129 million to shareholders through repurchases and dividends. In July, the company prepaid a $500 million U.S. term loan originally due in the first quarter of 2027 using proceeds from its revolving credit facility.

Jude said LKQ’s strategic review remains active, with Bank of America and Goldman Sachs advising the company as it engages with multiple parties. Specialty is included in the broader review, he said, and the company will provide updates when appropriate.

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.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.