LKQ Corporation reported its second quarter 2023 financial results, with revenue for Q2 2023 at $3.4 billion, an increase of 3.2% as compared to $3.3 billion in the second quarter of 2022.
“I am pleased to report strong operational performance for the quarter despite several headwinds, which is a testament to the strength and resilience of our diversified portfolio of businesses. Our largest segments, wholesale – North America and Europe, produced exceptional second quarter revenue growth and margins by focusing on operational excellence. These outstanding performances offset a steep year over year downturn in commodity prices impacting our self service segment and the decrease in demand for our specialty segment’s offerings, headwinds that will impact these segments for the balance of 2023,” said Dominick Zarcone, president and CEO. “We also had excellent cash flow during the quarter. Taken as a whole, I am very pleased with the results and extremely proud of our global teams.”
For the second quarter of 2023, parts and services organic revenue increased 4.8% (5.4% on a per day basis), foreign exchange rates increased revenue by 0.6% and the net impact of acquisitions and divestitures was flat year over year, for a total parts and services revenue increase of 5.4%. Other revenue for the second quarter of 2023 fell 23.9% primarily due to weaker commodity prices relative to the same period in 2022, LKQ reported.
Net income for the second quarter of 2023 was $281 million as compared to $420 million for the same period in 2022. The company completed the sale of PGW Auto Glass on April 18, which generated a pretax gain of $155 million ($127 million after-tax).
“The Wholesale – North America and Europe segments continue to perform ahead of expectations and are mitigating softness in our specialty segment,” said Rick Galloway, senior vice president and CFO. “However, continued effects from falling commodity prices and higher interest expense are driving changes to our prior EPS guidance range.”
On an adjusted basis, net income in the second quarter of 2023 was $291 million as compared to $307 million for the same period of 2022, a decrease of 5.1%. Operating improvements had a positive year over year impact on diluted earnings per share in the second quarter to mitigate the net headwind generated by: decreases in commodity prices, which had a negative effect of approximately $0.08; higher interest rates and average debt balances in the second quarter of 2023, which drove a year over year increase in net interest expense resulting in an unfavorable effect of $0.07 ($0.05 on an adjusted basis); and the lower share count in 2023, which provided a $0.04 benefit.
Cash Flow and Balance Sheet
Cash flow from operations and free cash flow were $480 million and $414 million, respectively, for the second quarter of 2023. Cash flow from operations and free cash flow were $703 million and $567 million, respectively, for the six months ended June 30, 2023. As of June 30, 2023, the balance sheet reflected total debt of $4 billion and total leverage, as defined in our credit facility, was 2.3x EBITDA.
Uni-Select Inc. Acquisition Update
On February 26, LKQ entered into an arrangement agreement in order to implement a plan of arrangement under the provisions of the Québec Business Corporations Act pursuant to which LKQ acquired all of Uni-Select Inc.’s issued and outstanding shares for Canadian dollar (CAD) 48.00 per share in cash, representing a total enterprise value of approximately CAD 2.8 billion ($2.1 billion at the June 30, 2023 exchange rate).
During the second quarter of 2023, LKQ received the required approvals from Uni-Select’s shareholders, the Superior Court of Québec and regulators in the United States and Canada with respect to the arrangement. On July 21, the United Kingdom’s Competition and Markets Authority (CMA) issued its Phase 1 decision on the Arrangement, and in response, LKQ submitted proposed undertakings relating to the divestiture of Uni-Select’s GSF Car Parts business in the U.K.
As a result of the satisfaction or waiver of all the closing conditions relating to required regulatory approvals on July 26, Uni-Select and LKQ Corporation proceeded with the remaining procedures necessary to give effect to the arrangement. As a result, the arrangement was completed August 1, and LKQ said it plans to divest the GSF Car Parts business soon thereafter.
