LKQ sees Q4 and annual 2023 revenue increase

Auto parts recycler LKQ Corp., headquartered in Chicago, has reported fourth-quarter and full-year 2023 financial results that include $3.5 billion in revenue for the quarter, an increase of 16.6 percent from the fourth quarter of 2022, and $13.9 billion in revenue for the year, an increase of 8.4 percent compared with 2022.

“The fourth quarter was a strong finish to a successful year for LKQ,” says Dominick Zarcone, president and CEO of LKQ. “I am proud of how the entire team worked through challenging macroeconomic conditions, persistent inflation and declining commodity prices to deliver solid organic revenue growth, year-over-year improvement in segment EBITDA [earnings before interest, taxes, depreciation and amortization, and strong cash flow generation.

“I look forward to collaborating with Justin Jude, my successor as chief executive officer, over the coming months to continue enhancing LKQ’s industry-leading business.”

“Operational excellence will remain at the forefront in 2024 as we look to drive organic revenue growth, productivity, strong margins and excellent free cash flow,” says Jude, current executive vice president and chief operating officer.

For the fourth quarter of 2023, parts and services organic revenue increased 2.8 percent (3.4 percent on a per-day basis), foreign exchange rates increased revenue by 2.7 percent and the net impact of acquisitions and divestitures increased revenue by 13.1 percent year over year for a total parts and services revenue increase of 18.7 percent, LKQ reports. Other revenue for the fourth quarter of 2023 fell 16.4 percent primarily because of weaker precious metals prices relative to the same period in 2022.

Net income for the quarter totaled $184 million compared with $193 million for the same period in2022. Diluted earnings per share was 69 cents compared with 72 cents for the same period in 2022, a decrease of 4.2 percent.

On an adjusted basis, the company’s net income was $226 million for the quarter compared with $209 million for the same period of 2022, an increase of 7.9 percent. Adjusted diluted earnings per share totaled 84 cents for the fourth quarter of 2023 compared with 78 cents during the final quarter of the previous year, an increase of 8 percent.

For the full year of 2023, parts and services organic revenue increased 4.7 percent (5.1 percent on a per-day basis), foreign exchange rates increased revenue by 0.9 percent and the net impact of acquisitions and divestitures increased revenue by 4.8 percent year over year, for a total parts and services revenue increase of 10.4 percent, LKQ reports. Other revenue for the full year of 2023 fell 19.6 percent primarily given weaker commodity prices relative to 2022.

Net income for the full year totaled $94 million compared with $1.14 billion for 2022. Diluted earnings per share in 2023 totaled $3.51 compared with $4.11 in 2022, a decrease of 14.6 percent.

On an adjusted basis, net income for the full year of 2023 was $1.03 billion compared with $1.07 billion in 2022, a decrease of 4 percent. Adjusted diluted earnings per share totaled $3.83 for 2023 compared with $3.85 in the previous year, a decrease of 0.5 percent.

Cash flow from operations and free cash flow were $1.4 billion and $1 billion, respectively, for 2023. As of Dec. 31, 2023, the balance sheet reflected total debt of $4.3 billion and total leverage, as defined in our credit facility, was 2.3x EBITDA.

During the fourth quarter of 2023, LKQ invested $30 million to repurchase 0.7 million shares of its common stock. For the year ended Dec. 31, 2023, the company invested $35 million to repurchase 0.8 million shares of its common stock. Since initiating the stock repurchase program in late October 2018, LKQ has repurchased approximately 56 million shares for a total of $2.4 billion through the end of 2023.

On Feb. 20, the company’s board of directors declared a quarterly cash dividend of 30 cents per share of common stock, payable on March 28, 2024, to stockholders of record at the close of business on March 14.

In October 2023, LKQ entered into an agreement to sell U.K.-based GSF Car Parts Ltd., which it acquired as part of its purchase of Uni-Select Inc., to Epiris Fund III, a private equity fund based in the United Kingdom, which was completed Oct. 25. The divestiture was required by the U.K.’s Competition and Markets Authority. Quebec-based 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.

Uni-Select’s integration is ongoing with roughly half of the FinishMaster locations converted or consolidated into LKQ locations to date and the remainder scheduled for completion by the end of the first quarter, according to the company.

“Our Wholesale – North America team’s agility and integration experience has the Uni-Select plan ahead of schedule, and we are confident in our ability to exceed the $55 million of synergies previously disclosed,” Jude says.

2024 outlook

“Our annual guidance reflects our emphasis on profitable revenue growth and free cash flow generation,” says Rick Galloway, senior vice president and chief financial officer. “We expect organic revenue growth from each of our operating segments. We also believe that in 2024, our margin enhancement initiatives will boost profitability, including a return to double-digit Europe Segment EBITDA margins.”

For 2024, LKQ’s management is expecting organic revenue growth for parts and services ranging from 3.5 percent to 5.5 percent, diluted earnings per share to range from $3.43 to $3.73, adjusted diluted earnings per share to range from $3.90 to $4.20, operating cash flow of $1.35 billion, free cash flow of $1 billion and free cash flow conversion of adjusted EBITDA to range from 50 percent to 60 percent.

LKQ says its outlook for 2024 is based on current conditions and recent trends and assumes a global effective tax rate of 26.8 percent, the prices of scrap and precious metals hold near the December 2023 average and no further deterioration arising from the Ukraine/Russia conflict.