$LKQ earnings report

LKQ reported a weak third quarter. Revenue declined to $3,319 million from $3,499 million, while organic revenue declined 5.0 %. Parts and services revenue declined 5.6 %, including a 5.4% decline in parts and services organic revenue. The decline was concentrated in Europe, where third party revenue fell 10.2 %, while North America third party revenue declined 2.6 % and Specialty third party revenue increased 1.9 %.

Profitability deteriorated substantially. Gross margin declined to $1,236 million, or 37.2 % of revenue, from $1,341 million, or 38.3 % of revenue. Operating income declined to $53 million from $274 million. The Company recorded $111 million of pre-tax non-cash impairment charges, comprising $88 million of goodwill impairment related to the Specialty reporting unit and $23 million related to the expected divestiture of Romanian operations.

GAAP net loss from continuing operations attributable to LKQ stockholders was $(24) million, compared with net income of $178 million, and diluted loss per share was $(0.09), compared with diluted earnings per share of $0.69. Adjusted net income declined to $127 million from $216 million and adjusted diluted earnings per share declined to $0.50 from $0.84. Segment EBITDA declined to $296 million from $395 million, with Europe Segment EBITDA declining to $68 million from $162 million and Specialty Segment EBITDA declining to $25 million from $34 million.

Liquidity remained positive but year-to-date cash generation was lower. Third-quarter cash flow from operations was $411 million and free cash flow was $372 million. For the nine months ended September 30, 2026, cash flow from operations was $466 million and free cash flow was $336 million, compared with $733 million and $573 million, respectively, in the prior-year period. Total debt was $3.7 billion, total leverage was 2.8x EBITDA, and cash and cash equivalents were $319 million.

Capital returns continued through dividends and repurchases, but strategic direction changed. LKQ returned $313 million to shareholders during the first nine months, including $83 million of share repurchases and $230 million of dividends. The Board extended the repurchase authorization through October 25, 2028 and declared a $0.30 per share quarterly dividend. However, the Board suspended the strategic review, including the Specialty sales process, announced a new CEO effective December 15, 2026, and withdrew full-year 2026 guidance.

LKQ provided preliminary, unaudited third-quarter results rather than a completed earnings release. The Company expects revenue of $3.32 billion, compared with $3.50 billion in the third quarter of 2025, alongside a parts and services organic revenue decline of 5.4%. The release identifies Europe as the principal source of the shortfall, while North America performed in line with expectations despite softer market conditions and Specialty was modestly below expectations.

Profitability is expected to deteriorate materially. Net (loss) income from continuing operations attributable to LKQ stockholders is expected to be (32) to (16), compared with 178 in the third quarter of 2025, and reported diluted (loss) earnings per share is expected to be $ (0.12) to $ (0.06), compared with $0.69. The preliminary results include $111 million of non-cash impairment charges, consisting of 88 of impairment of goodwill and 23 of impairment of net assets held for sale.

Adjusted performance also weakened. Adjusted net income is expected to be $119 to $135, compared with $216, while adjusted diluted earnings per share is expected to be $0.47 to $0.53, compared with $0.84. The reconciliation also includes 34 of amortization of acquired intangibles, 24 of restructuring and transaction related expenses, 4 of direct impacts of the Ukraine/Russia conflict, 1 of excess tax deficiency from stock-based payments, and a tax effect of adjustments of (23).

Europe is the central operational issue. Europe parts and services organic revenue declined 9.8%, and the segment EBITDA margin is expected to be 4.1% to 5.1%, compared with 10.0% in the third quarter of 2025. LKQ attributed the region’s performance to ERP implementation disruptions in Germany and volume declines in the United Kingdom and Benelux. The Board retained Alvarez & Marsal with an initial focus on customer service, operational stabilization, performance and cost discipline across the region.

The Company withdrew full-year 2026 guidance, most recently updated on July 30, 2026. Leadership actions accompany the withdrawal: Salvatore A. Abbate will become President and Chief Executive Officer effective December 15, 2026; Justin Jude departed effective today; and Andy Hamilton departed as President and Managing Director of LKQ Europe. LKQ will report full third-quarter results on October 29, 2026, but cautioned that the preliminary estimates are subject to unfinished financial and accounting procedures and may differ from the final unaudited condensed consolidated financial statements.

LKQ's second-quarter results were mixed. Revenue was $3.4 billion, a decrease of 3.0% from $3.5 billion, while total parts and services revenue decreased 3.6%. The company reported a 5.1% decrease in parts and services organic revenue, partly offset by a 1.0% increase from foreign exchange rates and a 0.5% revenue increase from the net impact of acquisitions and divestitures. GAAP net income was $134 million compared with $185 million, and adjusted net income was $170 million compared with $218 million.

The operational picture differed across regions. North America returned to positive organic growth for the first time in nine quarters, supported by record alternative-parts utilization of over 40%, moderating insurance premiums, and continued sequential improvement in repairable claims. Specialty delivered growth despite a challenging end market and macro-economic pressure on consumers. Europe was the primary shortfall, as the ERP implementation in Germany impaired results and the company experienced lower volumes in the UK and Benelux regions. Management said cost reductions outside the ERP impact largely offset those lower volumes.

Cash generation was positive in the quarter but weaker on a year-to-date basis. Cash flow from operations was $111 million and free cash flow was $60 million in the second quarter. For the six months ended June 30, 2026, cash flow from operations was $55 million and free cash flow was negative $36 million. The balance sheet carried total debt of $4.0 billion and total leverage of 2.8x EBITDA as of June 30, 2026. Capital returns included $52 million of second-quarter repurchases and $77 million of cash dividends.

Management reduced every disclosed full-year operating and cash flow target. Updated organic revenue growth for parts and services is (3.0%) to (1.0%), versus the prior outlook of (0.5%) to 1.5%. Updated diluted EPS is $1.78 to $2.08 and adjusted diluted EPS is $2.60 to $2.90. Updated operating cash flow is $825 to $1,025 million and free cash flow is $625 to $775 million. The revised outlook reflects a more measured European recovery after the ERP implementation, while management continues to emphasize restoring service levels, cost alignment, cash generation and capital allocation.

The strategic review remains active, with Specialty being evaluated within the broader review process initiated in January 2026. The company stated that it continues to engage with multiple parties but provided no deadline or definitive timetable and said there can be no assurance of a transaction or other strategic outcome. Near-term attention centers on European service recovery and volume trends, the durability of North American organic growth, Specialty demand, and progress toward the reduced full-year financial targets.