LKQ reports increased profits on lower revenue in 2020

Chicago-based LKQ Corp., an auto dismantler and components provider with locations in North America, Europe and Taiwan, has reported fourth quarter and full year 2020 results showing a 7 percent decrease in revenue but an 18.1 percent rise in net income.

The company’s 2020 revenue of $11.6 billion was down 7 percent from the $12.5 billion in sales in 2019, yet its net income for 2020 of $639 million represented an 18.1 percent increase compared with the $541 million earned in 2019.

The company says the favorable results “reflect continued improvement in operational and balance sheet productivity and further debt reduction” despite the interruption to revenue streams tied to “mobility restrictions” arising from COVID-19.

“Despite the headwinds we faced throughout 2020, we were able to execute on our key operating initiatives of pursuing profitable revenue, enhanced margins and free cash flow generation,” says Dominick Zarcone, LKQ’s president and CEO. “Additionally, the cost reductions our teams implemented in 2020 to confront the pandemic’s impact on demand are lessons that we will apply to our operations in 2021 and beyond.”

Adds Zarcone, “As we look to the year ahead, I am confident that the strength of our operations, balance sheet and free cash flow all position LKQ for solid growth and value creation for our stakeholders.”

Comments Varun Laroyia, LKQ’s chief financial officer, “While the recovery in miles traveled slowed in the fourth quarter, we anticipate a gradual recovery in the second half of the year as vaccination efforts take hold. Improving revenue trends combined with our improving cost structure should drive increased profitability relative to 2020 and contribute to another strong year of cash generation.”

Securities analyst Michael E. Hoffman of Baltimore-based Stifel Financial Corp. looks favorably on the results, writing, “We reiterate our ‘buy’ rating on diversified industrial top pick LKQ Corp. Despite macro factors that could be disruptive, LKQ beat on sales, EBITDA [earnings before interest, taxes, depreciation and amortization] and FCF [free cash flow], with slightly less organic sales growth in U.S. parts and services but better organic sales growth in EU parts and service.”