Yahoo Finance LKQ (NASDAQ:LKQ) Misses Q2 Revenue Estimates, Stock Drops
Automotive parts company LKQ (NASDAQ:LKQ) fell short of analysts' expectations in Q2 CY2024, with revenue up 7.6% year on year to $3.71 billion. It made a non-GAAP profit of $0.98 per share, down from its profit of $1.09 per share in the same quarter last year.
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LKQ (LKQ) Q2 CY2024 Highlights:
Revenue: $3.71 billion vs analyst estimates of $3.87 billion (4% miss)
EPS (non-GAAP): $0.98 vs analyst expectations of $1.03 (4.7% miss)
Significantly lowered its full-year organic revenue and EPS guidance
Gross Margin (GAAP): 38.8%, down from 41% in the same quarter last year
Free Cash Flow of $133 million, down 28.9% from the previous quarter
Organic Revenue fell 2% year on year (3% in the same quarter last year)
Market Capitalization: $11.87 billion
“Based on a projected continuation of the revenue headwinds we experienced in the first half of 2024, we are lowering our full year guidance. While we have taken actions to reduce costs and protect our margins and cash flows, the benefits are not expected to offset the full impact of the lower revenue expectation,” stated Rick Galloway, Senior Vice President and Chief Financial 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 is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Regrettably, LKQ's sales grew at a weak 3% compounded annual growth rate over the last five years. This shows it failed to expand in any major way and is a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. LKQ's annualized revenue growth of 4.9% over the last two years is above its five-year trend, but we were still disappointed by the results.
LKQ also reports organic revenue, which strips out one-time events like acquisitions and currency fluctuations because they don't accurately reflect its fundamentals. Over the last two years, LKQ's organic revenue averaged 2.1% year-on-year growth. Because this number is lower than its normal revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline performance.
This quarter, LKQ's revenue grew 7.6% year on year to $3.71 billion, missing Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 7.1% over the next 12 months.
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Cash Is King
Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
LKQ has shown weak cash profitability over the last two years, putting it in a pinch as it gave the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin averaged 6.2%, subpar for a consumer discretionary business.
LKQ's free cash flow clocked in at $133 million in Q2, equivalent to a 3.6% margin. The company's margin regressed as it was 8.4 percentage points lower than in the same quarter last year, but we wouldn't read too much into it because working capital and capital expenditure needs can be seasonal, leading to quarter-to-quarter swings. Long-term trends trump short-term fluctuations.
Over the next year, analysts' consensus estimates show they're expecting LKQ's free cash flow margin of 5.2% for the last 12 months to remain the same.
Key Takeaways from LKQ's Q2 Results
We struggled to find many strong positives in these results. Its revenue, organic revenue, and EPS unfortunately fell short of Wall Street's estimates. On top of that, it significantly lowered its full-year organic revenue and EPS guidance. Overall, this quarter could have been better. The stock traded down 6.2% to $41.71 immediately after reporting.
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.
