Why Is LKQ (LKQ) Down 52.1% Since Last Earnings Report?

It has been about a month since the last earnings report for LKQ (LKQ). Shares have lost about 52.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is LKQ due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

LKQ Delivers Improved Y/Y Results in Q4

LKQ Corporation reported adjusted earnings of 54 cents per share in the fourth quarter of 2019, surpassing the Zacks Consensus Estimate of 52 cents. The bottom line also increased 13% year over year. Higher year-over-year revenues from the North American segment led to this outperformance.

Quarterly revenues came in at 3,009 million, missing the Zacks Consensus Estimate of $3,015 million. However, the top line increased from the year-ago level of $3,002 million. The company witnessed 0.9% organic revenue growth in parts and services. Revenue growth from acquisitions was 0.2% year on year.

Segment Highlights

Revenues from the North American unit totaled $1,283 million, up 2.3% year over year. EBITDA from the segment came in at $179.96 million, up from the year-ago figure of $153.38 million.

Revenues from the European segment totaled $1,425 million, down 0.14% year over year. EBITDA from the segment came in at $107.93 million, up 0.93% year over year.

Revenues and EBITDA from the Specialty segment came in at $303.35 million and $25.39 million, down from the year-ago figure of $322.95 million and $27.55 million, respectively.

Financial Position

LKQ Corp had cash and cash equivalents of $523.02 million as of Dec 31, 2019. Long-term debt amounted to $3,715 million. Its debt-to-capital ratio stands at 44.46%. At the end of fourth-quarter 2019, the company generated net cash of $98.86 million from operations, lower than the $189.57 million witnessed in the comparable year-ago period. The company generated negative free cash flow of $1.31 million in the quarter compared with the year-earlier quarter’s $111.3 million.

2020 Outlook

For 2020, LKQ Corp forecasts adjusted diluted EPS of $2.46-$2.58. Organic revenue growth for parts & services is projected at 0.5-2.5% and adjusted net income is estimated to be $757-$793 million. Capex is anticipated to lie in the range of $250 million to $300 million, and cash flow from operations is forecast in the band of $1-$1.5 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -7.02% due to these changes.

VGM Scores

At this time, LKQ has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, LKQ has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.