LKQ Corporation Announces Results for Third Quarter 2023
Company / Press Release
October 27, 2023
- Revenue of $3.6 billion (a 15% increase compared to the same period in 2022); parts and services organic revenue increased 3.0% (4.3% on a per day basis)
- Diluted EPS2 of $0.77; adjusted diluted EPS1, 2 of $0.86
- Third quarter operating cash flow of $441 million; free cash flow1 of $344 million
- Increased dividend by 9%; $0.30 per share approved to be paid in the fourth quarter of 2023
- Completed Uni-Select Inc. acquisition on August 1, 2023
- Completed divestiture of GSF Car Parts Limited on October 25, 2023
- Europe Segment EBITDA margins impacted by 110 basis points due to a legacy value-added tax issue related to our Italian operations and strikes in Germany
- Annual guidance updated
Chicago, IL. LKQ Corporation (Nasdaq: LKQ) today reported third quarter 2023 financial results. “Our third quarter results reflected some tailwinds and headwinds. On the positive side, we experienced strong organic growth in our Wholesale - North America and Europe segments, drove excellent margins in Wholesale - North America, and generated robust free cash flow. Unfortunately, these strengths were offset by a combination of unusual, transitory items in Europe, continued softness in commodity prices, and difficult market conditions impacting our Specialty and Self Service segments. Our success since implementing the operational excellence strategy in 2019 gives us confidence in our ability to take decisive actions and drive improved execution. We have great assets and an exceptional team, which we believe will enable long-term growth and value creation. The fundamentals of our business remain strong,” noted Dominick Zarcone, President and Chief Executive Officer.
Third Quarter 2023 Financial Results
Revenue for the third quarter of 2023 was $3.6 billion, an increase of 15.0% as compared to $3.1 billion for the third quarter of 2022. For the third quarter of 2023, parts and services organic revenue increased 3.0% (4.3% on a per day basis), foreign exchange rates increased revenue by 3.6% and the net impact of acquisitions and divestitures increased revenue by 10.5% year over year, for a total parts and services revenue increase of 17.1%. Other revenue for the third quarter of 2023 fell 17.5% primarily due to weaker commodity prices relative to the same period in 2022.
Net income2 for the third quarter of 2023 was $207 million as compared to $261 million for the same period in 2022. Diluted earnings per share2 for the third quarter of 2023 was $0.77 as compared to $0.95 for the same period of 2022, a decrease of 18.9%.
On an adjusted basis, net income1, 2 in the third quarter of 2023 was $231 million as compared to $266 million for the same period of 2022, a decrease of 13.2%. Adjusted diluted earnings per share1, 2 was $0.86 for the third quarter of 2023 as compared to $0.97 for the same period of 2022, a decrease of 11.3%.
Diluted earnings per share2 decreased in the third quarter of 2023 with negative effects from: (i) unusual items in Europe related to a legacy value-added tax issue related to our Italian operations and strikes in Germany, which had an estimated $0.06 impact, (ii) fluctuations in commodity prices, which had a $0.04 effect, (iii) higher interest rates and average debt balances in the third quarter, which drove a year-over-year increase in net interest expense, excluding the effect of Uni-Select borrowings, of $0.04 and (iv) continued underperformance of our Specialty segment of $0.03. As a partial offset to these factors, the lower share count and favorable foreign currency translation provided a combined $0.10 year over year benefit ($0.04 on an adjusted basis), and our North America operations, excluding Uni-Select, performed favorably compared to the prior year period.
Cash Flow and Balance Sheet
Cash flow from operations and free cash flow1 were $441 million and $344 million, respectively, for the third quarter of 2023. Cash flow from operations and free cash flow1 were $1,144 million and $911 million, respectively, for the nine months ended September 30, 2023. As of September 30, 2023, the balance sheet reflected total debt of $4.4 billion and total leverage, as defined in our credit facility, was 2.3x EBITDA.
Stock Repurchase and Dividend Programs
During the nine months ended September 30, 2023, the Company invested $5 million to repurchase 0.1 million shares of its common stock. Since initiating the stock repurchase program in late October 2018, the Company has repurchased approximately 55 million shares for a total of $2.4 billion through September 30, 2023.
On October 24, 2023, the Board of Directors declared a quarterly cash dividend of $0.30 per share of common stock, payable on November 30, 2023, to stockholders of record at the close of business on November 16, 2023. This represents a 9% increase over the prior quarterly dividend of $0.275 per share.
Uni-Select Inc. Acquisition Update
On August 1, 2023, we announced the completion of the acquisition of Uni-Select Inc. ("Uni-Select") by way of a plan of arrangement (the "Arrangement") under the provisions of the Business Corporations Act (Québec). Under the terms of the Arrangement, we acquired all of the issued and outstanding shares of Uni-Select for C$48.00 per share in cash, representing a total enterprise value of approximately CAD 2.8 billion ($2.1 billion).
In October 2023, we entered into a definitive agreement to sell GSF Car Parts Limited. The sale was completed on October 25, 2023.
Rick Galloway, Senior Vice President and Chief Financial Officer, commented, “We are reducing our full year guidance on revenue and earnings per share due to our underperformance in the third quarter and expected fourth quarter effects from additional strike activity in Germany, the anticipated dilution from the Uni-Select acquisition, soft commodity prices, and a continuation of difficult market conditions for our Specialty and Self Service segments. We are raising our free cash flow guidance due to our continued solid cash flow generation.”
For 2023, management updated the outlook as set forth below:
2023 Previous Full Year Outlook
2023 Updated Full Year Outlook
Organic revenue growth for parts and services
6.0% to 7.5%
4.75% to 5.75%
$3.65 to $3.85
$3.41 to $3.55
Adjusted diluted EPS1, 2
$3.90 to $4.10
$3.68 to $3.82
Operating cash flow
approx. $1.275 billion
approx. $1.3 billion
Free cash flow1
approx. $975 million
approx. $1.0 billion
Free cash flow conversion of EBITDA1
55% to 60%
55% to 60%
Our outlook for the full year 2023 is based on current conditions and recent trends, and assumes a global effective tax rate of 27.0%, the prices of scrap and precious metals hold near the September average, and no further deterioration due to the Ukraine/Russia conflict. We have applied foreign currency exchange rates near current average levels, including $1.06 and $1.23 for the euro and pound sterling, respectively, for the balance of the year. Prior guidance issued on July 27, 2023 had foreign currency exchange rate levels of $1.09 and $1.25 for the euro and pound sterling, respectively. Changes in these conditions may impact our ability to achieve the estimates. The full year GAAP outlook includes projected Uni-Select operational results from the acquisition date through year-end. Adjusted figures exclude (to the extent applicable) the impact of restructuring and transaction related expenses; amortization expense related to acquired intangibles; excess tax benefits and deficiencies from stock-based payments; losses on debt extinguishment; impairment charges; direct impacts of the Ukraine/Russia conflict (including provisions for and subsequent adjustments to reserves for asset recoverability and expenditures to support our employees and their families), interest and financing costs related to the Uni-Select transaction prior to closing and gains and losses related to acquisitions or divestitures (including changes in the fair value of contingent consideration liabilities and gains or losses on foreign currency forward contracts related to the Uni-Select acquisition).
1 Non-GAAP measure. See the table accompanying this release that reconciles the actual or forecasted U.S. GAAP measure to the actual or forecasted adjusted measure, which is non-GAAP.
2 References in this release to Net income and Diluted earnings per share, and the corresponding adjusted figures, reflect amounts from continuing operations attributable to LKQ stockholders.
Non-GAAP Financial Measures
This release contains (and management’s presentation on the related investor conference call will refer to) non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. Included with this release are reconciliations of each non-GAAP financial measure with the most directly comparable financial measure calculated in accordance with GAAP.
Webcast and Presentation Details
The audio webcast and accompanying slide presentation can be accessed at (www.lkqcorp.com) in the Investor Relations section.
A replay of the investor conference call will be available by telephone at (800) 770-2030 or (647) 362-9199 for international calls. The telephone replay will require you to enter conference ID: 5232422. An online replay of the audio webcast will be available on the Company's website. Both formats of replay will be available through November 10, 2023. Please allow approximately two hours after the live presentation before attempting to access the replay.
About LKQ Corporation
LKQ Corporation (www.lkqcorp.com) is a leading provider of alternative and specialty parts to repair and accessorize automobiles and other vehicles. LKQ has operations in North America, Europe and Taiwan. LKQ offers its customers a broad range of OEM recycled and aftermarket parts, replacement systems, components, equipment, and services to repair and accessorize automobiles, trucks, and recreational and performance vehicles.
About LKQ Europe
LKQ Europe, a subsidiary of LKQ Corporation (www.lkqcorp.com), headquartered in Zug, Switzerland, is the leading distributor of automotive aftermarket parts for cars, commercial vans, and industrial vehicles in Europe. It currently employs approximately 26,000 people with a network of more than 1,000 branches and approximately $5.7 billion in revenue in 2022. The organization supplies more than 100,000 workshops in over 20 European countries.
The group includes LKQ UK & Ireland, LKQ Benelux-France, LKQ RHIAG Group, Elit, LKQ CZ, and LKQ DACH, as well as recycling specialist, Atracco. LKQ is the largest shareholder in MEKO Group.
Investor Relations Contact
Joseph P. Boutross
Vice President, Investor Relations
T +1 312 621-2793
E [email protected]
Media Contact Europe
Head of External Communications
T +41 41 884 8442
E [email protected]