LKQ CORP (LKQ) Q2 2025 Earnings Summary

Executive Summary

• Revenue declined 1.9% year over year to $3.642B; GAAP diluted EPS was $0.75 and adjusted diluted EPS was $0.87, reflecting margin pressure from lower volumes and competitive dynamics .
• Guidance was lowered across organic parts & services revenue (to -3.5% to -1.5%), GAAP EPS ($2.47–$2.77), adjusted EPS ($3.00–$3.30), operating cash flow ($0.875–$1.075B), and free cash flow ($0.60–$0.75B), driven by industry repairable claim weakness in North America, tariff uncertainty, and economic softness in Europe .
• Management highlighted execution on cost reductions ($125M realized LTM; targeting another $75M in 2025) and portfolio simplification; a UK salvage JV (SYNETIQ) supports European salvage expansion and regulatory readiness .
• Versus Wall Street consensus, Q2 revenue was modestly above expectations while EPS was below; consensus EPS ~$0.92* vs. adjusted EPS $0.87 and revenue ~$3.62B* vs. $3.642B. Values retrieved from S&P Global.*

What Went Well and What Went Wrong

What Went Well

• North America outperformed industry repairable claims by ~650 bps, with aftermarket collision parts volume positive despite a 9% industry decline; service levels and fill rates cited as share drivers .
• Gross margin improved year over year in Europe on procurement and productivity initiatives, even as revenue softened; UK national account renewals largely retained (lost one) .
• Cost discipline: >$125M removed over the past 12 months; targeting another $75M in 2025, with the majority from Europe, and reduced 2025 capex by ~$50M to mitigate tariff-driven working capital headwinds .
  “We will move faster and harder to simplify our business and reduce costs.” — Justin Jude (CEO)

What Went Wrong

• Parts & services organic revenue declined 3.4% year over year (2.7% per day basis), pressured by fewer repairable claims in North America and competitive pricing in certain European markets .
• North America gross margins fell ~100 bps, and segment EBITDA margin declined to 15.8% (from 17.3% a year ago), reflecting competitive dynamics and overhead deleverage from lower revenue .
• Guidance lowered due to weak June repairable claim trends and persistent macro/geopolitical softness in Europe; management no longer expects a repairable claim rebound in 2025 .

Financial Results

Estimates comparison (Q2 2025):

Values retrieved from S&P Global.*

Segment revenue and margin (Q2 yoy):

Key KPIs:

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We will move faster and harder to simplify our business and reduce costs.” — Justin Jude, CEO
• “We are lowering our full year outlook... persistent economic softness [Europe] and ongoing U.S. trade negotiations are drivers of an uncertain environment.” — Rick Galloway, CFO
• “Our aftermarket collision parts business witnessed slight growth... we grew market share by ~650 bps better than repairable claim trends.” — Justin Jude
• “We have extended the maturity date of the $500M U.S. term loan... effective interest rate was 5.2%; ~75% of debt effectively fixed via swaps.” — Rick Galloway

Q&A Highlights

• Tariffs: ~$35M tariff costs sitting in inventory at Q2 end; pricing pass-through intact; main challenge is trade working capital in 2H; capex reduced by ~$50M to mitigate .
• North America: Aftermarket volume was positive despite 9% repairable claim decline; APU near 39% as OEM price increases support alternative parts value proposition .
• Europe: Competitive pricing in UK moderating; retained nearly all renegotiated national accounts (lost one on price) .
• Salvage JV (UK): No incremental capex required; leverages SYNETIQ infrastructure and LKQ’s distribution .
• Debt & liquidity: Total debt $4.5B; leverage 2.6x; extended term loan maturity to Q1’27; maintaining IG ratings .

Estimates Context

• Q2 2025: Primary EPS Consensus Mean ~$0.923 vs. adjusted EPS $0.87; Revenue Consensus Mean ~$$3.6216B vs. $3.642B; 7 estimates for both EPS and revenue.*
  Values retrieved from S&P Global.*

Where estimates may need to adjust:

• Lowered FY 2025 guidance (organic revenue, EPS, FCF) and commentary indicating no repairable claims rebound in 2025 suggest consensus EPS/FCF will likely move down, with potential offset from cost actions and capex cuts .

Key Takeaways for Investors

• The quarter showed resilient execution (share gains, service levels) amid weak repairable claims and tariff uncertainty; however, lowered guidance reflects a tougher macro backdrop, especially Europe .
• North America pricing power and alternative parts mix (APU ~39%) helped offset OEM price increases; aftermarket collision volume was positive despite demand headwinds .
• Cost program is meaningful (> $125M realized; targeting +$75M in 2025), with European operations the focus; expect benefits to be more visible into 2026 as programs complete .
• Liquidity and capital structure remain solid (2.6x leverage; swaps fixing ~75% of debt; extended term loan), enabling continued dividends and opportunistic buybacks .
• Strategic UK salvage JV (SYNETIQ) augments European salvage capability and regulatory readiness, offering potential mix/margin upside over time .
• For near-term trading: expect sensitivity to repairable claim trends, tariff headlines, and European competitive dynamics; any signs of claim stabilization or successful pass-through of tariffs are potential catalysts .
• Medium-term thesis: portfolio simplification, lean operations, private label penetration, and salvage expansion underpin margin recovery and ROIC improvement as macro normalizes .

Notes:
* Values retrieved from S&P Global.