LKQ (LKQ) - 2025 Q2 - Quarterly Results

Financial & Operational Highlights Second Quarter 2025 Financial Results LKQ Corporation's Q2 2025 revenue decreased by 1.9% to $3.6 billion due to a 3.4% organic decline, while GAAP net income increased to $192 million and diluted EPS rose by 7.1% to $0.75, despite adjusted figures showing a decline Q2 2025 Financial Metrics | Financial Metric | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $3.6 billion | $3.7 billion | (1.9)% | | Net Income | $192 million | $185 million | +3.8% | | Diluted EPS | $0.75 | $0.70 | +7.1% | | Adjusted Net Income | $225 million | $261 million | (13.8)% | | Adjusted Diluted EPS | $0.87 | $0.98 | (11.2)% | - The 1.9% total revenue decrease was driven by a 3.4% organic revenue decline, partially offset by a 2.3% positive impact from foreign exchange rates; acquisitions and divestitures had a net negative impact of 1.0%[3] - The company has implemented significant cost reduction measures, removing over $125 million in costs over the past 12 months and targeting an additional $75 million for 2025[4] Second Quarter 2025 Operational Highlights North American organic revenue outperformed the market despite a 9% industry-wide decline in repairable claims, while Europe is undergoing a significant leadership overhaul and focusing on cost reduction, SKU rationalization, and salvage business expansion - North American organic revenue outperformed the market even as the entire industry experienced a 9% decline in repairable claims[5] - In Europe, the company is executing a turnaround strategy that includes: - Replacing over 25% of the leadership team - Focusing on cost reduction and SKU rationalization - Entering a strategic partnership to expand the salvage business[5] Strategic Initiatives & Management Commentary Strategic Initiatives The company's strategy focuses on simplifying its business portfolio, expanding its lean operating model globally, investing in core businesses for organic growth, and maintaining disciplined capital allocation to maximize shareholder value - LKQ's core strategic initiatives are: - Simplify Business Portfolio: Focus on non-discretionary businesses and divest non-core assets - Expand Lean Operating Model: Scale the lean model globally to drive productivity - Invest and Grow Organically: Invest in core businesses to gain market share - Pursue Disciplined Capital Allocation: Focus on maximizing shareholder value[6] Management Commentary Management expressed confidence in the company's three-year plan, with the CEO emphasizing accelerated business simplification and cost reduction, and the CFO reiterating focus on disciplined capital allocation amidst cyclical market challenges - CEO Justin Jude stated the company is in transformation and will "move faster and harder to simplify our business and reduce costs" to be positioned for when the market cycle turns[7] - CFO Rick Galloway emphasized the focus on executing strategic initiatives, maintaining a disciplined capital allocation strategy, and using Return on Invested Capital (ROIC) as a key measure while navigating cyclical market issues[9] Capital Management Cash Flow and Balance Sheet The company generated $296 million in cash flow from operations and $243 million in free cash flow during Q2 2025, with total debt at $4.5 billion and a leverage ratio of 2.6x EBITDA as of June 30, 2025 Cash Flow (in millions) | Cash Flow (in millions) | Q2 2025 | Six Months Ended June 30, 2025 | | :--- | :--- | :--- | | Cash Flow from Operations | $296 | $293 | | Free Cash Flow | $243 | $186 | - As of June 30, 2025, the balance sheet reflected total debt of $4.5 billion and a total leverage ratio of 2.6x EBITDA[8] Shareholder Returns In Q2 2025, LKQ returned $117 million to shareholders through $39 million in share repurchases and $78 million in dividends, with $1.6 billion remaining under its share repurchase authorization and a declared quarterly dividend of $0.30 per share - During Q2 2025, the company repurchased 1.0 million shares for approximately $39 million and paid $78 million in dividends[8] - The company has a remaining authorization of $1.6 billion for share repurchases through October 25, 2026[8] - The Board of Directors declared a quarterly cash dividend of $0.30 per share, payable on August 28, 2025[8] 2025 Outlook Updated 2025 Full Year Outlook LKQ has lowered its full-year 2025 outlook due to macroeconomic headwinds in North America and Europe, now expecting organic revenue to decline between 1.5% and 3.5%, and reducing guidance for diluted EPS, adjusted diluted EPS, and free cash flow - The outlook was lowered due to a confluence of factors, including no recovery in repairable claims and tariff uncertainty in North America, and general economic softness and geopolitical unrest in Europe[10] Updated 2025 Full Year Outlook | Metric | Previous 2025 Outlook | Updated 2025 Outlook | | :--- | :--- | :--- | | Organic revenue growth | 0% to 2% | (3.5%) to (1.5%) | | Diluted EPS | $2.91 to $3.21 | $2.47 to $2.77 | | Adjusted diluted EPS | $3.40 to $3.70 | $3.00 to $3.30 | | Operating cash flow | $1.075 to $1.275 billion | $0.875 to $1.075 billion | | Free cash flow | $0.75 to $0.90 billion | $0.60 to $0.75 billion | Consolidated Financial Statements Income Statement For Q2 2025, revenue declined 1.9% YoY to $3.64 billion, while net income attributable to LKQ stockholders rose 3.8% to $192 million; for the first six months, revenue fell 4.2% to $7.11 billion, with net income increasing 5.2% to $361 million due to lower restructuring expenses Q2 2025 Income Statement (in millions) | Income Statement (in millions) | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $3,642 | $3,711 | (1.9)% | | Gross Margin | $1,412 | $1,441 | (2.0)% | | Operating Income | $312 | $329 | (5.2)% | | Net Income (to LKQ) | $192 | $185 | +3.8% | H1 2025 Income Statement (in millions) | Income Statement (in millions) | H1 2025 | H1 2024 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $7,105 | $7,414 | (4.2)% | | Gross Margin | $2,789 | $2,893 | (3.6)% | | Operating Income | $599 | $618 | (3.1)% | | Net Income (to LKQ) | $361 | $343 | +5.2% | Balance Sheet As of June 30, 2025, LKQ's total assets increased to $15.94 billion from $14.96 billion at year-end 2024, driven by higher receivables, inventories, and goodwill, while total liabilities rose to $9.40 billion and stockholders' equity grew to $6.54 billion Balance Sheet (in millions) | Balance Sheet (in millions) | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $5,465 | $4,906 | | Total Assets | $15,944 | $14,955 | | Total Current Liabilities | $3,012 | $2,862 | | Long-term Obligations | $4,395 | $4,127 | | Total Stockholders' Equity | $6,543 | $6,032 | Cash Flow Statement For the first six months of 2025, net cash provided by operating activities significantly decreased to $293 million from $466 million in H1 2024, primarily due to a larger negative impact from changes in receivables and a smaller positive contribution from accounts payable Cash Flow (in millions) | Cash Flow (in millions) | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $293 | $466 | | Net Cash used in Investing Activities | ($99) | ($178) | | Net Cash used in Financing Activities | ($169) | ($276) | | Net Increase in Cash | $54 | $2 | Segment & Revenue Analysis Revenue Analysis In Q2 2025, total revenue fell 1.9%, with parts and services revenue down 2.1%, driven by a 4.9% organic decline in Europe and a 2.6% organic decline in Wholesale - North America; for the first half, total revenue was down 4.2%, with a 3.9% organic decline in parts and services Q2 2025 Revenue Change vs. Q2 2024 | Q2 2025 Revenue Change vs. Q2 2024 | Organic | Acquisition/Divestiture | Foreign Exchange | Total Change | | :--- | :--- | :--- | :--- | :--- | | Wholesale - North America | (2.6)% | 0.3% | (0.2)% | (2.6)% | | Europe | (4.9)% | (2.2)% | 5.2% | (1.9)% | | Specialty | (0.3)% | —% | (0.1)% | (0.4)% | | Parts and services | (3.4)% | (1.0)% | 2.3% | (2.1)% | H1 2025 Revenue Change vs. H1 2024 | H1 2025 Revenue Change vs. H1 2024 | Organic | Acquisition/Divestiture | Foreign Exchange | Total Change | | :--- | :--- | :--- | :--- | :--- | | Wholesale - North America | (4.0)% | 0.3% | (0.6)% | (4.3)% | | Europe | (3.9)% | (2.2)% | 1.4% | (4.7)% | | Specialty | (3.2)% | —% | (0.3)% | (3.4)% | | Parts and services | (3.9)% | (0.9)% | 0.4% | (4.4)% | Segment Performance Total Segment EBITDA for Q2 2025 decreased to $430 million from $484 million in Q2 2024, with the margin contracting from 13.0% to 11.8%, as both Wholesale - North America and Europe segments experienced significant declines in EBITDA and margin compression Segment EBITDA (in millions) | Segment EBITDA (in millions) | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Wholesale - North America | $227 | $256 | $449 | $500 | | Europe | $151 | $174 | $292 | $317 | | Specialty | $39 | $41 | $60 | $68 | | Self Service | $13 | $13 | $33 | $29 | | Total Segment EBITDA | $430 | $484 | $834 | $914 | Segment EBITDA Margin | Segment EBITDA Margin | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Wholesale - North America | 15.8% | 17.3% | 15.7% | 16.8% | | Europe | 9.4% | 10.6% | 9.3% | 9.7% | | Total Segment EBITDA Margin | 11.8% | 13.0% | 11.7% | 12.3% | Non-GAAP Financial Measures & Reconciliations Segment EBITDA Reconciliation This section reconciles GAAP Net Income to Segment EBITDA, showing that for Q2 2025, Net Income of $193 million was adjusted for items like depreciation & amortization ($105M), net interest expense ($58M), and taxes ($68M) to reach Segment EBITDA of $430 million Segment EBITDA Reconciliation (in millions) | Reconciliation (in millions) | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net income | $193 | $186 | | Adjustments (D&A, Interest, Taxes, etc.) | $238 | $299 | | Segment EBITDA | $430 | $484 | Adjusted Net Income & EPS Reconciliation This table reconciles GAAP Net Income and Diluted EPS to their adjusted non-GAAP counterparts, illustrating that for Q2 2025, Net Income of $192 million was adjusted for items such as amortization of acquired intangibles ($36M) and restructuring expenses ($8M) to achieve an Adjusted Net Income of $225 million Adjusted Net Income & EPS Reconciliation (in millions, except EPS) | Reconciliation (in millions, except EPS) | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net income attributable to LKQ | $192 | $185 | | Adjustments (Amortization, Restructuring, etc.) | $33 | $76 | | Adjusted net income | $225 | $261 | | Reported Diluted EPS | $0.75 | $0.70 | | Adjusted Diluted EPS | $0.87 | $0.98 | Forecasted Adjusted Net Income & EPS Reconciliation This section provides the reconciliation for the company's full-year 2025 guidance, showing that the forecasted GAAP Net Income range of $639M-$717M is adjusted for expected amortization ($142M) and restructuring ($42M) to arrive at the forecasted Adjusted Net Income range of $775M-$853M FY 2025 Forecast Reconciliation (in millions, except EPS) | FY 2025 Forecast Reconciliation (in millions, except EPS) | Minimum Outlook | Maximum Outlook | | :--- | :--- | :--- | | Net income | $639 | $717 | | Adjustments | $136 | $136 | | Adjusted net income | $775 | $853 | | Reported Diluted EPS | $2.47 | $2.77 | | Adjusted Diluted EPS | $3.00 | $3.30 | Free Cash Flow Reconciliation This section details the calculation of Free Cash Flow by subtracting capital expenditures from operating cash flow, indicating that for Q2 2025, the company generated $243 million in Free Cash Flow from $296 million in operating cash flow, with a full-year forecast between $600 million and $750 million FCF Reconciliation (in millions) | FCF Reconciliation (in millions) | Q2 2025 | H1 2025 | | :--- | :--- | :--- | | Net cash provided by operating activities | $296 | $293 | | Less: purchases of property, plant and equipment | $53 | $107 | | Free cash flow | $243 | $186 | Forecasted FY 2025 FCF (in millions) | Forecasted FY 2025 FCF (in millions) | Minimum | Maximum | | :--- | :--- | :--- | | Net cash provided by operating activities | $875 | $1,075 | | Less: purchases of property, plant and equipment | $275 | $325 | | Free cash flow | $600 | $750 | Forward-Looking Statements & Risk Factors Risk Factors The company outlines numerous risk factors that could materially affect its business and financial results, including adverse economic and political conditions, intense competition, reliance on insurance companies, supply chain disruptions, commodity price fluctuations, substantial indebtedness, and regulatory changes - The report contains forward-looking statements, including the 2025 outlook, which are subject to numerous risks and uncertainties, and the company undertakes no obligation to update these statements[16][17] - Key business risks include: - Adverse economic, political, and social conditions - Intense competition from various providers - Reliance on insurance companies to promote alternative parts - Potential decline in vehicle accidents or repairs - Fluctuations in commodity prices - Supply chain disruptions and supplier relationships[19][20] - Financial and operational risks include: - Substantial indebtedness that could affect financial condition - Inability to generate sufficient cash to service debt - Risks associated with foreign operations and exchange rates - Cybersecurity threats and reliance on IT systems - Potential for activist investor campaigns[20][21]