LKQ reports 19 percent revenue drop but remains profitable

Chicago-based LKQ Corp. has reported second-quarter 2020 revenue of $2.6 billion, down 19.1 percent compared with the second quarter of 2019. The company says “implemented targeted cost actions” allowed it to achieve net income of $119 million, which was still down 21.2 percent compared with the year-ago quarter.

“The momentum we gained in April and May continued through June, and we finished the quarter solidly,” says Dominick Zarcone, LKQ president and CEO. “Operating cash flows were $718 million, a 56 percent increase over the same period in 2019. Additionally, despite the decline in revenue, our North American team delivered segment earnings before interest, taxes, depreciation and amortization (EBITDA) margin of 14.8 percent.”

LKQ says its second-quarter 2020 results were “consistent with the company’s previously announced second-quarter business update on June 15, 2020.” Zarcone also says LKQ’s European segment showed “continuous improvements from a revenue and margin perspective each month as we migrated through the quarter.”

Looking ahead, Zarcone comments, “The operating environment continues to evolve, and while the company’s second-quarter performance exceeded our expectations at the beginning of the quarter, there remains a high degree of uncertainty about the ongoing rate and shape of the COVID-19 recovery. As a result, the company is not providing new fiscal 2020 guidance at this time.”

Baltimore-based investment analyst Michael Hoffman of Stifel Financial Corp. says Stifel is maintaining its “buy” rating on LKQ, adding the LKQ’s second-quarter results “exceeded all reasonable expectations, given the disruption of the pandemic.”

Adds Hoffman, “It appears LKQ gained share in both key parts and service markets of the United States and European Union. Despite the disruption of activity, its focus on free cash flow (FCF) remained vigilant, with second-quarter 2020 FCF at $685 million.” The FCF figure represents a 66 percent increase compared with the second quarter 2019 figure.