LKQ Q3 Earnings Call Highlights

Key Points

• LKQ’s third-quarter results weakened: Revenue fell 5.1% to approximately $3.3 billion, while adjusted diluted EPS dropped to $0.50 from $0.84. GAAP results included a $111 million non-cash impairment charge, resulting in a $0.09 diluted loss per share.
• Europe remained the primary operational drag: Organic revenue declined 9.8%, with ERP disruptions in Germany estimated to have reduced revenue by $95 million and EBITDA by $43 million. LKQ hired Alvarez & Marsal to help stabilize European operations and improve service, inventory and logistics execution.
• LKQ is undergoing a leadership and strategy reset: CEO Justin Jude departed, Sal Abbate is set to become CEO in December, and the company suspended its strategic review and withdrew 2026 guidance. North America delivered a 14.4% EBITDA margin despite lower sales, while operating cash flow remained positive at $411 million.

LKQ NASDAQ: LKQ reported lower third-quarter revenue and earnings as operational disruptions in Europe continued to weigh on results, while North America expanded margins despite softer sales. The company also detailed recent leadership changes, suspended its 2026 guidance and paused its strategic review process.

Third-quarter revenue totaled approximately $3.3 billion, down 5.1% from $3.5 billion a year earlier. Parts and Services organic revenue declined 5.4%, while foreign exchange reduced revenue by 0.7%. Acquisitions and divestitures contributed a net 0.6% to revenue.

LKQ reported a GAAP diluted loss per share of $0.09, compared with earnings of $0.69 per share in the prior-year quarter. Results included $111 million of pre-tax non-cash charges, consisting of an $88 million goodwill impairment related to the Specialty segment and a $23 million impairment on net assets held for sale in Romania. Adjusted diluted earnings per share was $0.50, down from $0.84 a year earlier.

Leadership transition and strategic review

Chairman John Mendel said the board made leadership changes after determining that LKQ’s financial and operating performance had not reflected the company’s underlying business strengths. Justin Jude departed as chief executive officer on Oct. 23, and Sal Abbate is scheduled to become president and CEO on Dec. 15.

Until Abbate joins, LKQ is being led by an interim Office of the CEO composed of Mendel and Sue Gove, chair of the company’s Audit Committee.

Mendel said Abbate has more than three decades of experience leading distribution and industrial businesses. He previously served as CEO of Veritiv, where he led a transformation that ended with the company’s $2.6 billion sale to Clayton, Dubilier & Rice in 2023.

The board also suspended LKQ’s strategic review, including the sales process for its Specialty business, to allow Abbate to assess the company and its value-creation options. LKQ withdrew its full-year 2026 guidance, saying prior guidance should no longer be relied upon amid the leadership transition and continuing challenges in Europe.

European performance remains under pressure

Europe was the company’s largest operational challenge during the quarter. Europe Parts and Services organic revenue declined 9.8%, improving from a 12.6% decline in the second quarter but remaining below LKQ’s expectations. Segment EBITDA fell to $68 million from a level representing a 10.0% margin a year earlier, with the third-quarter margin falling to 4.6%.

Chief Financial Officer Rick Galloway said the company had too many operational initiatives underway simultaneously, which diverted attention from customer service. The issues included disruptions to category management and product availability, gaps in branch profiling and assortment, and service-level problems in certain markets.

In Germany, LKQ said branch availability had returned to near pre-implementation levels following an enterprise resource planning, or ERP, rollout, while on-time, in-full delivery reached 95% across the region. However, revenue recovery has lagged the operational improvement. The company estimated that the ERP disruption reduced German revenue by approximately $95 million and lowered Europe segment EBITDA by approximately $43 million during the quarter.

Galloway said sales in Germany were running at about 85% of the prior-year level on a per-day basis. While roughly 75% of the company’s approximately 155 German locations were delivering in the upper 90% range on service metrics, LKQ is focusing on improving lower-performing branches through onsite support and training.

Outside Germany, execution problems affected competitiveness and contributed to market-share losses in the United Kingdom and Benelux. Galloway said conditions deteriorated further in those markets during the third quarter, though he noted that LKQ’s Euro Car Parts business remains the leading player in the U.K.

LKQ hired Alvarez & Marsal to advise on European operations. The consulting firm’s initial mandate includes stabilizing operations, addressing ERP-related issues, improving customer service levels, strengthening inventory and logistics execution, and increasing cost discipline.

• Europe gross margin declined about 220 basis points year over year.
• SG&A as a percentage of revenue rose about 350 basis points, reflecting lower-volume deleveraging, higher freight and fuel costs, and technology-related professional fees.
• The company said it added roughly 300 temporary workers during the quarter to improve delivery performance, with most no longer needed by quarter-end.

North America margins improve despite lower sales

North America Parts and Services organic revenue declined 2.4%, compared with a 1% to 3% decline in repairable claims. The segment generated EBITDA of $203 million and a 14.4% margin, up 40 basis points from the prior-year period.

Gross margin improved to 42.3%, supported by a broader deployment of LKQ’s strategic pricing model. The company also lowered SG&A despite higher freight and fuel expenses, with personnel costs approximately $7 million below the prior-year quarter.

Galloway said alternative-part utilization reached a record nearly 41% during the quarter, supported by declining auto insurance pricing and high levels of self-pay repairs. The company said its parts provide a lower-cost option for consumers managing out-of-pocket repair expenses.

The hard-parts business posted its third consecutive quarter of organic growth, producing low-single-digit growth in the third quarter. However, Galloway said delivery-performance issues in portions of the non-collision business weighed on overall North American results. He said those issues had been significantly addressed entering the fourth quarter.

On the collision side, Galloway said one large multi-shop operator changed its sourcing approach, reducing LKQ’s share somewhat during the quarter. He said the company remains in discussions with that customer and reported growth with other multi-shop operators.

Specialty growth slows; cash flow remains positive

Specialty organic revenue grew 90 basis points in the quarter, slowing from recent periods. Galloway cited higher fuel prices, interest rates affecting the automotive business, and softer Canadian demand related to geopolitical trade tensions and retaliatory tariffs.

Specialty segment EBITDA was $25 million, with a 5.5% margin, down about 180 basis points from the prior-year quarter. The decline primarily reflected higher freight and fuel costs and integration challenges tied to an acquisition completed in the second quarter.

Third-quarter operating cash flow was $411 million and free cash flow was $372 million, aided by working-capital management and North American cash conversion. As of Sept. 30, LKQ had $3.7 billion of total debt, leverage of 2.8 times EBITDA under its credit agreement, and approximately $1.7 billion of liquidity.

During the quarter, LKQ repurchased approximately 1.2 million shares for $30 million, paid $76 million in dividends and extended its share-repurchase program through October 2028. The board also declared a quarterly cash dividend of $0.30 per share on Oct. 27. Year to date, the company said it had returned $313 million to shareholders.

About LKQ (NASDAQ:LKQ)

LKQ Corporation is a global distributor of automotive parts and accessories. The company supplies replacement parts, components and equipment to professional repair shops, collision-repair businesses, insurers, dealerships and other commercial customers. Its product offerings include recycled original-equipment parts, aftermarket parts, specialty vehicle products, tools and equipment.

LKQ's operations include the procurement, dismantling and distribution of salvaged vehicles, allowing it to provide recycled engines, transmissions, body panels and other components.

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