On Friday, JPMorgan revised its price target for LKQ Corp (NASDAQ:LKQ), reducing it to $54 from the previous $63, while keeping an Overweight rating on the stock. The adjustment follows a significant drop in LKQ's shares on Thursday, which closed down 12.4% compared to a modest 0.5% decline in the S&P 500.
The company's second-quarter performance fell short of expectations, with earnings per share (EPS) coming in at $0.98, below the JPMorgan estimate of $1.07 and the Bloomberg consensus of $1.03.
Revenue for the quarter was reported at $3.711 billion, which did not meet the $3.843 billion forecasted by JPMorgan or the consensus estimate of $3.866 billion. Additionally, LKQ's adjusted EBITDA of $484 million was slightly under the JPMorgan expectation of $499 million, though it was in line with the general consensus.
The lower-than-anticipated results were primarily attributed to a decline in sales, despite a maintained margin of 13.0%, which was consistent with JPMorgan's estimate and slightly above the consensus expectation of 12.8%.
The North America Parts & Service segment saw a notable shortfall, with organic sales down 5.3% against a JPMorgan estimate of a 1.5% decrease. This was partly due to a 7% year-over-year drop in repairable claims, influenced by less frequent accidents and consumers postponing repairs amid increasing insurance costs and decreasing used car values.
Despite the challenging conditions, LKQ's management has indicated that volumes have stabilized from May through July.
Cost-saving initiatives have led to $60 million in annualized savings by the end of the second quarter, helping the North America segment's EBITDA margin reach 17.3%, surpassing the JPMorgan estimate of 16.7%.
The company has reiterated its full-year guidance for the North America segment EBITDA margin at approximately 17% and remains confident in maintaining this margin, which includes the impact of the Uni-Select acquisition.
In Europe, organic revenue growth was a modest 0.3% year-over-year, below JPMorgan's 4.0% projection. The Europe EBITDA margin was approximately 10.6%, compared to an expected 11.2% from JPMorgan, with underlying margins at about 9.5% after accounting for temporary wage accrual reductions.
For the full year, margins in Europe are anticipated to be in the mid-to-high 9% range, with the company expecting to achieve a double-digit EBITDA margin in the longer term through cost restructuring and other measures.
In light of the softer second-quarter results and the projection of a continued challenging consumer affordability environment, LKQ has revised its full-year 2024 guidance for EBITDA, EPS, and free cash flow (FCF), and has lowered its organic revenue growth outlook to a range of -1.25% to +0.5%.
In other recent news, LKQ Corporation has made significant strides in its operations. The company recently concluded a collective bargaining agreement with the German trade union Verdi, which will benefit around 5,000 of its employees in Germany.
The agreement, which is effective immediately and spans a two-year period until April 30, 2026, includes salary increases, compensation adjustments in line with inflation, and improved wages for trainees.
In addition to this, LKQ Corporation has announced a strategic divestiture, selling its subsidiary Elit Polska to MEKO AB. The transaction, set to close in the second half of 2024, aligns with LKQ's initiative to streamline its assets. Elit Polska reported revenues of approximately $107 million in 2023.
Kimball Electronics recently reported its Q3 fiscal 2024 financial results, falling short of analyst expectations with an adjusted earnings per share of $0.34 and revenue of $425.04 million. Despite softer Q1 earnings, LKQ reaffirmed its commitment to achieving full-year earnings guidance.
Analyst firms Jefferies and Baird adjusted their outlook on LKQ Corp, reducing the price target but maintaining their positive ratings.
InvestingPro Insights
In the wake of recent performance reviews and forecasts for LKQ Corp, real-time data from InvestingPro offers valuable insights for investors. With a market capitalization of $10.29 billion and a P/E ratio that has adjusted to 12.87 over the last twelve months as of Q2 2024, LKQ presents an interesting case for investment analysis. The company's revenue growth of 12.25% over the same period signals a strong upward trajectory, while a gross profit margin of 39.36% showcases its ability to maintain profitability.
InvestingPro Tips reveal that LKQ has been resilient in terms of financial stability, having raised its dividend for three consecutive years, which is a positive indicator for investors seeking steady income streams. Additionally, the company’s liquid assets surpassing short-term obligations suggest a solid financial footing, which is crucial during uncertain economic times. Analysts remain optimistic about LKQ's profitability for the year, a sentiment that is supported by the company being profitable over the last twelve months.
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