LKQ (NASDAQ:LKQ) Misses Q1 Revenue Estimates
Automotive parts company LKQ (NASDAQ:LKQ) missed analysts' expectations in Q1 CY2024, with revenue up 10.6% year on year to $3.70 billion. It made a non-GAAP profit of $0.82 per share, down from its profit of $1.04 per share in the same quarter last year.
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LKQ (LKQ) Q1 CY2024 Highlights:
- Revenue: $3.70 billion vs analyst estimates of $3.76 billion (1.6% miss)
- EPS (non-GAAP): $0.82 vs analyst expectations of $0.95 (13.8% miss)
- Full year guidance maintained for adjusted EPS and free cash flow (although organic sales guidance lowered)
- Gross Margin (GAAP): 39.2%, down from 41% in the same quarter last year
- Free Cash Flow of $187 million, up 115% from the previous quarter
- Organic Revenue was down 1.1% year on year
- Market Capitalization: $13.05 billion
“Confronted with soft demand, our Wholesale – North America team accelerated our FinishMaster footprint rationalization by consolidating 65 branches in the first quarter. To date, we have consolidated a total of 99 branches, representing 66% of the acquired locations, which is more than we anticipated completing in the first three-years. Through this effort, our team uncovered additional opportunities for synergies, which has given us the confidence to increase our previously disclosed synergies from $55 million to $65 million,” said Justin Jude, Executive Vice President and Chief Operating Officer.
A global distributor of vehicle parts and accessories, LKQ (NASDAQ:LKQ) offers its customers a comprehensive selection of high-quality, affordably priced automobile products.
Specialized Consumer Services
Some consumer discretionary companies don’t fall neatly into a category because their products or services are unique. Although their offerings may be niche, these companies have often found more efficient or technology-enabled ways of doing or selling something that has existed for a while. Technology can be a double-edged sword, though, as it may lower the barriers to entry for new competitors and allow them to do serve customers better.
Sales Growth
A company’s long-term performance can give signals about its business quality. Any business can put up a good quarter or two, but many enduring ones muster years of growth. LKQ's annualized revenue growth rate of 3% over the last five years was weak for a consumer discretionary business. 
Within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. LKQ's annualized revenue growth of 3.5% over the last two years aligns with its five-year revenue growth, suggesting the company's demand has been stable.
We can dig even further into the company's revenue dynamics by analyzing its organic sales, which strip out currency fluctuations and one-time events like acquisitions. Over the last two years, LKQ's organic sales averaged 2.7% year-on-year growth. Because this number aligns with its revenue growth during the same period, we can see the company's core operations drove most of its performance. 
This quarter, LKQ's revenue grew 10.6% year on year to $3.70 billion, falling short of Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 8.6% over the next 12 months, a deceleration from this quarter.
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Cash Is King
If you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.
Over the last two years, LKQ has shown mediocre cash profitability, putting it in a pinch as it gives the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin has averaged 6.9%, subpar for a consumer discretionary business.
LKQ's free cash flow came in at $187 million in Q1, equivalent to a 5% margin and up 22.2% year on year. Over the next year, analysts predict LKQ's cash profitability will fall. Their consensus estimates imply its LTM free cash flow margin of 7.3% will decrease to 6.2%.
Key Takeaways from LKQ's Q1 Results
We struggled to find many strong positives in the quarter's results. Its organic revenue, reported revenue, and EPS all missed Wall Street's estimates. However, full year guidance was maintained for adjusted EPS and free cash flow. The company stated that "despite the revenue headwinds we encountered in the first quarter, we are maintaining our adjusted earnings per share and free cash flow guidance. We have confidence in our team’s abilities and their track record of swiftly and effectively implementing action plans to address our cost-structure, and have already made meaningful changes to reflect current levels of demand." Overall, the results could have been better. The stock is flat after reporting and currently trades at $48.91 per share.
LKQ may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
