LKQ Corp. reports net income decrease for 2022

LKQ Corp., headquartered in Chicago, has reported its fourth-quarter and full-year 2022 financial results, which included fourth-quarter revenue of $3 billion and a 4.5 percent increase in parts and services organic revenue for the quarter. The company reported an annual increase of 5 percent in parts and services organic revenue. LKQ says it set fourth-quarter records for its Wholesale – North America and Europe segments’ earnings before interest, taxes, depreciation and amortization (EBITDA) of 18.5 percent and 10 percent, respectively.

“The fourth quarter was a solid operational finish to 2022,” says Dominick Zarcone, president and chief executive officer of LKQ. “Our Wholesale - North America and Europe segments again delivered outstanding organic revenue growth and solid margins, exceeding our expectations for the quarter and year. Importantly, our global teams delivered these results in the midst of rampant inflation, supply chain disruptions, a tight labor market, lower commodity prices and volatile exchange rates. The execution of our strategy, the resiliency of our business model and the strength of our balance sheet have the company well-positioned to continue its success and performance in 2023.”

Results for the quarter and year

The $3 billion LKQ reported for the quarter is a decrease of 5.8 percent compared with the $3.2 billion the company reported in the fourth quarter of 2021. On a constant currency basis, fourth-quarter revenue decreased by 0.1 percent. Parts and services organic revenue increased 4.5 percent for the quarter, while the net impact of acquisitions and divestitures decreased revenue by 3.1 percent and foreign exchange rates decreased revenue by 6.1 percent, for a total parts and services revenue decrease of 4.8 percent, LKQ says. Other revenue fell 20.1 percent in the fourth quarter of 2022 primarily from weaker commodity prices relative to the same period in 2021.

Net income for the fourth quarter was $193 million compared with $235 million for the same period in 2021. Diluted earnings per share for the quarter were 72 cents as compared with 81 cents for the same period of 2021, a decrease of 11.1 percent.

On an adjusted basis, net income for the quarter totaled $209 million compared with $254 million for the same period of 2021, a decrease of 17.5 percent. Adjusted quarterly diluted earnings per share were 78 cents compared with 87 cents for the same period of 2021, a decrease of 10.3 percent.

The effective tax rate for the fourth quarter of 2022 was 29.7 percent, which reflected adjustments to true-up the calculated full-year effective rate as well as discrete tax expenses, LKQ says.

Its annual revenue for 2022 was $12.8 billion, a decrease of 2.3 percent compared with $13.1 billion for the full year of 2021. On a constant currency basis^, full-year 2022 revenue increased by 2.8 percent to $13.5 billion, while parts and services organic revenue increased 5 percent on a reported basis. The net impact of acquisitions and divestitures decreased revenue by 1.2 percent, and foreign exchange rates decreased revenue by 5.5 percent, for a total parts and services revenue decrease of 1.7 percent. Other revenue for the full year of 2022 fell 9.2 percent primarily because of weaker commodity prices relative to 2021.

Net income for the full year of 2022 was $1.14 billion as compared with $1.09 billion for the same period in 2021. Diluted earnings per share for the full year totaled $4.11 as compared with $3.66 for the same period of 2021, an increase of 12.3 percent.

On an adjusted basis, net income for the full year totaled $1.07 billion relative to $1.18 billion for the same period of 2021, a decrease of 9.4 percent. Adjusted diluted earnings per share for the full year were $3.85 compared with $3.96 for the same period of 2021, a decrease of 2.8 percent.

Cash flow and balance sheet

Cash flow from operations and free cash flow were $1.25 billion and $1 billion, respectively, for the full year of 2022. As of Dec. 31, 2022, the balance sheet reflected total debt of $2.7 billion, and total leverage, as defined in our credit facility, was 1.5 times EBITDA.

Stock repurchase and dividend programs

During the fourth quarter, LKQ invested $152 million to repurchase 3 million shares of its common stock. For the year ended Dec. 31, 2022, it invested $1.04 billion to repurchase 20.5 million shares. Since initiating the stock repurchase program in late October 2018, LKQ reports that it has repurchased approximately 55 million shares for a total of $2.4 billion through Dec. 31, 2022.

Oct. 25, 2022, the company’s board authorized a $1 billion increase to the existing share repurchase program, which raised the aggregate authorization to $3.5 billion, and extended the duration of the program through Oct. 25, 2025.

Feb. 21, the board of directors declared a quarterly cash dividend of 27.5 cents per share of common stock, payable March 30 to stockholders of record at the close of business March 16.

Other events

LKQ says that it entered into a new credit agreement with several lenders Jan. 5, at which time the prior credit agreement was terminated. The new credit agreement includes an unsecured revolving credit facility of up to a U.S. dollar equivalent of $2 billion and an unsecured term loan facility of up to $500 million. The revolving credit facility has a maturity date of Jan. 5, 2028, and the term loan has a maturity date of Jan. 5, 2026, each of which maturity dates may be extended for one year.

2023 outlook

Rick Galloway, senior vice president and chief financial officer, says, “Our 2023 annual guidance reflects our ongoing commitment of creating long-term value for our stockholders through our operational excellence initiatives of driving profitable growth, implementing ongoing margin enhancement programs and generating robust levels of free cash flow through disciplined capital spending and active working capital management. As we navigate this period of macro uncertainty and nonoperational headwinds, we expect healthy demand for our products and services, solid organic growth and sustained operating momentum across our industry-leading business segments.”

For 2023, LKQ’s management says it anticipates organic revenue growth in parts and services ranging from 6 percent to 8 percent, diluted EPS ranging from $3.68 to $3.98 and adjusted diluted EPS of $3.90 to $4.20. 

LKQ says its outlook for the full year 2023 is based on current conditions and recent trends and assumes a global effective tax rate of 26.3 percent, the prices of scrap and precious metals hold near the December average and no further deterioration arising from the Ukraine/Russia conflict.

The company says it has applied foreign currency exchange rates near January average levels, including $1.08 and $1.22 for the euro and pound sterling, respectively. The outlook assumes a $45 million to $55 million increase in annual interest expense relative to 2022.

LKQ says changes in these conditions could affect its ability to achieve the estimates.

Recent acquisition agreement

Shortly after announcing its financial results, LKQ announced that it had entered into an agreement with Quebec-based Uni-Select Inc. to acquire all of Uni-Select’s issued and outstanding shares for CA$48 per share in cash, representing a total enterprise value of approximately CA$2.8 billion ($2.1 billion).

Founded in Boucherville, Quebec, in 1968, Uni-Select distributes automotive refinish and industrial coatings and related products in North America through its FinishMaster segment, in the automotive aftermarket parts business in Canada through its Canadian Automotive Group segment and in the U.K. through its GSF Car Parts segment. With more than 5,200 employees, 15 distribution centers and more than 400 branches, Uni-Select supports more than 70,000 customers annually across the United States, Canada and the U.K.

“This acquisition further enhances LKQ’s global automotive vehicle parts distribution business,” says Zarcone. “Uni-Select’s North American automotive refinish paint and mechanical parts distribution operations complement LKQ’s existing footprint and will allow us to distribute a broader array of products to our customers. We look forward to welcoming Uni-Select’s employees to the LKQ team. Importantly, we believe that our combined efforts will create tremendous long-term value for our customers, shareholders, employees and other stakeholders as we continue to focus on our operational excellence initiatives.”

The purchase also allows LKQ to build its presence in Québec, including Uni-Select’s Boucherville, Quebec, head office.

Brian McManus, executive chair and chief executive officer of Uni-Select, adds, “The transaction offers compelling value and liquidity to our shareholders and is the culmination of the efforts by our dedicated team to improve our operations and drive efficiencies with a focus on excellent customer service. We see great opportunities to benefit our customers, employees, suppliers and brands by combining our complementary strengths within the larger, multidisciplinary and growing LKQ team.”