LKQ Corporation announces results for second quarter 2022

Date: Tuesday 09 August 2022

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LKQ Corporation (Nasdaq:LKQ) has reported second quarter 2022 financial results.

“We had a solid second quarter delivering strong organic growth, and I am extremely proud of the results the LKQ team achieved in a challenging operating environment, which included significant inflationary pressures, supply chain disruptions, and volatile commodity and currency markets. Despite these challenges, we continued to drive our strategic initiatives forward,” noted Dominick Zarcone, President and Chief Executive Officer. “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.”

Second Quarter 2022 Financial Results
Revenue for the second quarter of 2022 was $3.3 billion, a decrease of 2.7% as compared to $3.4 billion in the second quarter of 2021. On a constant currency basis2, second quarter revenue grew by 2.5% to $3.5 billion. Parts and services organic revenue increased 3.8%, while the net impact of acquisitions and divestitures decreased revenue by 1.0% and foreign exchange rates decreased revenue by 5.6%, for a total parts and services revenue decrease of 2.7%. Other revenue fell 2.9% owing to changes in commodity prices relative to the same period in 2021.

Net income1 for the quarter was $420 million as compared to $305 million for the same period in 2021. Diluted earnings per share1 for the quarter was $1.49 as compared to $1.01 for the same period of 2021, an increase of 47.5%. On April 18, 2022, the Company completed the sale of PGW Auto Glass, which generated a pretax gain of $155 million ($127 million after tax), or $0.45 per share.

On an adjusted basis, net income1,2 in the quarter was $307 million as compared to $340 million for the same period of 2021, a decrease of 9.6%. Adjusted diluted earnings per share1,2 for the quarter was $1.09 as compared to $1.13 for the same period of 2021, a decrease of 3.5%.

Cash Flow and Balance Sheet
For the second quarter, cash flow from operations and free cash flow2 were $328 million and $288 million, respectively. Cash flow from operations and free cash flow2 were $737 million and $638 million, respectively, for the six months ended June 30, 2022. As of June 30, 2022, the balance sheet reflected total debt of $2.4 billion and net debt2 of $2.1 billion. Net leverage, as defined in the credit facility, was 1.2x EBITDA.

Stock Repurchase and Dividend Programs
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, 2022, the Company has repurchased 10.8 million shares for $548 million, and since initiating the stock repurchase program in late October 2018, the Company has repurchased approximately 45 million shares for a total of $1.9 billion. In May 2022, the Board of Directors increased the total share repurchase authorization to $2.5 billion, effective through October 2024.

On July 26, 2022, our Board of Directors declared a quarterly cash dividend of $0.25 per share of common stock, payable on September 1, 2022, to stockholders of record at the close of business on August 11, 2022.

Other Events
On May 23, 2022, the Company published its 2021 Corporate Sustainability Report.
On June 3, 2022, the Company announced that Moody’s Investors Service assigned a ‘Baa3’ Issuer Rating to LKQ with a stable outlook.

2022 Outlook
Varun Laroyia, Executive Vice President and Chief Financial Officer commented: “By focusing on our operational excellence initiatives, the business continues to deliver profitable growth and solid free cash flow. Notwithstanding the significant headwinds from foreign currency exchange rates and commodity price fluctuations, we are holding the midpoint of our adjusted diluted EPS range and our free cash flow guidance for the full year.”

For 2022, management updated the outlook as set forth below:

	2022 Previous Full Year Outlook	2022 Updated Full Year Outlook
Organic revenue growth for parts and services	4.5% to 6.5%	4.5% to 6.5%
Diluted EPS	$3.57 to $3.87	$4.09 to $4.29
Adjusted diluted EPS	$3.80 to $4.10	$3.85 to $4.05
Operating cash flow	$1.3 billion	$1.3 billion
Free cash flow (at a minimum)	$1.0 billion	$1.0 billion
Free cash flow converstion of EBITDA	55-60%	55-60%

 

Our outlook for the full year 2022 is based on current conditions and recent trends, and assumes current U.S. federal tax legislation remains unchanged, the prices of scrap and precious metals hold near the June average, and no further deterioration due to the Ukraine/Russia conflict. We have applied exchange rates near July spot levels, including $1.02 and $1.20 for the euro and pound sterling, respectively, for the balance of the year. Our outlook is also based on management’s current expectations regarding the recovery from the COVID-19 pandemic. Changes in these conditions may impact our ability to achieve the estimates. Adjusted figures exclude (to the extent applicable) the impact of restructuring and transaction related expenses; amortization expense related to acquired intangibles; excess tax benefits and deficiencies from stock-based payments; losses on debt extinguishment; impairment charges; direct impacts of the Ukraine/Russia conflict (including provisions for and subsequent adjustments to reserves for asset recoverability and expenditures to support our employees and their families) and gains and losses related to acquisitions or divestitures (including changes in the fair value of contingent consideration liabilities and the gain on the PGW Auto Glass sale).

Andy Hamilton, CEO of LKQ Euro Car Parts, said:

“Every single one of our colleagues – in the UK, Ireland and across the world – should be proud of how the business has performed throughout the second quarter, despite facing challenges including increasing inflation, supply chain disruption and the war in Ukraine.

“Our focus on driving efficiencies delivers benefits to our customers, too, as we work hard to manage and minimise the cost increases they face, while providing training and equipment to help them enhance their capabilities and widen their proposition.

“Independents provide better customer service and a better experience than the dealerships – at a better price – which puts them in a good position to grow their share of the aftermarket, especially as the car parc ages. That’s what we’re here to help them do.”

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