LKQ Corp. reports income growth but less revenue

Chicago-based automotive recycler LKQ Corp. has reported second quarter 2022 financial results that show a decrease in revenue and but year-on-year growth in net income. Despite this, the company remains optimistic about its position in the industry.  

“The second quarter of 2022 was one of the most unusual and complicated operating environments we've encountered, maybe ever, since the financial crisis,” says Dominick Zarcone, president and CEO. “During the quarter, we were confronted with ongoing COVID risk and the issues associated with an uptick in positive cases in our workforce. Despite these challenges, we continued to drive our strategic initiatives forward.”  

Revenue for the second quarter of 2022 was $3.3 billion, a decrease of 2.7 percent compared with $3.4 billion in the second quarter of 2021. On a constant currency basis, second-quarter revenue grew by 2.5 percent to $3.5 billion. Parts and services organic revenue increased 3.8 percent, while the net impact of acquisitions and divestitures decreased revenue by 1 percent and foreign exchange rates decreased revenue by 5.6 percent, for a total parts and services revenue decrease of 2.7 percent. Other revenue fell 2.9 percent owing to changes in commodity prices relative to the same period in 2021.  

Net income for the quarter was $420 million compared with $305 million for the same period in 2021. Diluted earnings per share for the quarter were $1.49 as compared with $1.01 for the same period of 2021, an increase of 47.5 percent. April 18, the company completed the sale of PGW Auto Glass, which generated a pretax gain of $155 million ($127 million after tax), or 45 cents per share.  

On an adjusted basis, net income in the quarter was $307 million compared with $340 million for the same period of 2021, a decrease of 9.6 percent. Adjusted diluted earnings per share for the quarter were $1.09 compared with $1.13 in 2021, a decrease of 3.5 percent.  

The company attributes this downturn to major labor constraints, ongoing supply chain disruptions and a challenging inflationary environment globally. Zarcone says soaring energy prices, commodity price volatility, the conflict in Ukraine and political unrest across the globe, have resulted in major volatility in the foreign exchange markets, with the euro weakening materially in the quarter and reaching parity with the dollar in July.   

For the second quarter, cash flow from operations and free cash flow were $328 million and $288 million, respectively. Cash flow from operations and free cash flow were $737 million and $638 million, respectively, for the six months ended June 30. As of June 30, the balance sheet reflected total debt of $2.4 billion and net debt of $2.1 billion. Net leverage as defined in the credit facility was 1.2-times earnings before interest, taxation, depreciation and amortization (EBITDA).  

“As expected and previously communicated, precious metal prices were a drag on results year over year, generating a $32 million negative effect on segment EBITDA and an 8 percent headwind on adjusted diluted EPS,” says Varun Laroyia, the chief financial officer of LKQ. “Most of the impact related to the precious metals found in catalytic converters, the prices of which were near record levels in the second quarter of 2021. Roughly $20 million of the negative effect was reflected in the self-service segment.”  

Laroyia adds exchange rates created further issues as the average rates for the euro and pound sterling decreased by 12 percent and 10 percent compared with Q2 of 2021. The currency impact reduced segment EBITDA by $20 million and adjusted diluted EPS by 4 cents relative to last year.  

During the second quarter of 2022, the company deployed $404 million to repurchase 8.1 million shares of its common stock. For the six months ended June 30, the company has repurchased 10.8 million shares for $548 million. Since initiating the stock repurchase program in 2018, LKQ has repurchased about 45 million shares for $1.9 billion. In May, the board of directors increased the total share repurchase authorization to $2.5 billion, effective through 2024.  

July 26, LKQ’s board of directors declared a quarterly cash dividend of 25 cents per share of common stock, payable Sept. 1, to stockholders of record at the close of business Aug. 11.  

“As we enter the back half of the year, we are well positioned with our market-leading businesses, experienced management teams, strong balance sheet, and balanced capital allocation strategy, giving us the confidence to maintain our full-year 2022 guidance,” Zarcone says.