• Capital Returned to Shareholders: $678 million, with $360 million in share repurchases and $318 million in dividends.
• Share Repurchase: Approximately 2 million shares repurchased for about $80 million in the quarter.
• Quarterly Cash Dividend: $0.30 per share declared in October and February, totaling $78 million paid in November.
• North American Revenue Decline: 8.5% per day, with a 4% decline in collision parts revenue.
• European Segment EBITDA Margin: 10.1% in the quarter, highest Q4 segment EBITDA margin achieved in Europe.
• Specialty Organic Revenue Decline: 7.3% on a per day basis.
• Full Year Diluted EPS: $2.62; Adjusted Diluted EPS: $3.48.
• Q4 Diluted EPS: $0.60; Adjusted Diluted EPS: $0.80.
• North America Segment EBITDA Margin: 16.8%, a 50 basis point increase relative to last year.
• Free Cash Flow: $149 million in the quarter, $810 million year-to-date.
• Total Debt: $4.2 billion with a leverage ratio of 2.3 times EBITDA.
• 2025 Guidance for Adjusted Diluted EPS: $3.40 to $3.70.
• 2025 Free Cash Flow Expectation: $750 to $900 million.

• Warning! GuruFocus has detected 6 Warning Signs with ZLDPF.

Release Date: February 20, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• LKQ Corp (NASDAQ:LKQ) returned $678 million to shareholders in 2024 through share repurchases and dividends.
• The company successfully integrated Finishmaster into its network, closing 129 of 151 locations, achieving higher synergies than expected.
• LKQ Corp (NASDAQ:LKQ) achieved a record fourth-quarter EBITDA margin of 10.1% in its European segment, marking the third consecutive quarter with double-digit margins.
• The company is expanding its mega yard operations, which are expected to drive growth in recycled parts and productivity.
• LKQ Corp (NASDAQ:LKQ) is actively pursuing SKU rationalization in Europe, aiming to simplify operations and enhance procurement benefits.

Negative Points

• North American revenue declined by 8.5% per day in Q4, impacted by non-recurring benefits from UAW strikes and storm impacts.
• Specialty segment faced a 7.3% decline in organic revenue per day, with ongoing demand softness and competitive pricing pressures.
• The company experienced a brief cyber incident in Canada, affecting North American revenue.
• Tariff uncertainties remain a concern, with potential impacts on the company's supply chain and competitive positioning.
• The company anticipates continued headwinds in North America due to repairable claims and salvage margins, particularly in the first half of 2025.

Q & A Highlights

Q: Can you comment on any revenue impact from the SKU rationalization project in Europe and the beneficial terms from consolidating business with remaining vendors? A: We are taking a cautious approach to SKU rationalization to avoid revenue loss. So far, we haven't seen any revenue concerns. We're increasing our ability to say yes to customer requests by focusing on applications rather than brands. We are also adding more private label products to compete in price-sensitive markets. We expect slight improvements in vendor terms and cost of goods, but haven't quantified these yet. - Justin Jude, President, Chief Executive Officer

Q: How might the lower new vehicle sales in 2022 and 2023 impact market trends over the next few years? A: We haven't seen a significant impact on repairable claims from lower new vehicle sales. The aging vehicle fleet benefits LKQ, especially in mechanical parts like engines and transmissions. Our sweet spot is vehicles aged 3 to 12 years. Recent data shows used car prices are rising, which is positive for us. - Justin Jude, President, Chief Executive Officer and Rick Galloway, Senior Vice President, Chief Financial Officer

Q: Could potential tariffs provide LKQ a competitive advantage, and how does LKQ's supply chain compare to local peers? A: Less than 5% of our total purchases are from Mexico, Canada, and China, so tariffs have minimal direct impact. Historically, we've passed tariff costs to customers. If tariffs affect competitors more, it could be a competitive advantage for us. - Justin Jude, President, Chief Executive Officer

Q: Can you provide insights into the mega yards initiative and key performance indicators to gauge progress? A: Mega yards allow us to consolidate multiple local yards, increasing capacity and efficiency. They enable us to hold vehicles longer, maximizing parts sales. This initiative is relatively new, but we expect strong long-term returns. - Justin Jude, President, Chief Executive Officer

Q: What is the outlook for North American margins and the impact of non-recurring items? A: North America's full-year EBITDA margin was 16.6%, with about 50 basis points from non-recurring items like a legal settlement and a cyber incident. Adjusted for these, the margin would be around 16.1%. - Rick Galloway, Senior Vice President, Chief Financial Officer

Q: What are the long-term margin opportunities in Europe beyond 2025? A: We are bullish on European margins, expecting 30 to 40 basis points of improvement annually for several years. We believe margins can grow beyond 11% as we continue category and portfolio management. - Rick Galloway, Senior Vice President, Chief Financial Officer

Q: How is LKQ addressing the electric vehicle (EV) market, and what opportunities exist in EV parts recycling? A: We are investing in remanufacturing hybrid and full battery electric vehicle batteries. Currently, most EV batteries are recycled into new production. As EVs become more prevalent, we aim to capitalize on opportunities in collision parts and battery recycling. - Justin Jude, President, Chief Executive Officer

Q: What is the impact of private label products in Europe, and how do they compare to national brands in terms of revenue and margins? A: Private label products account for about 20% of revenue, with a goal to increase to 30%. They typically offer a 25% higher gross margin compared to national brands. - Justin Jude, President, Chief Executive Officer

For the complete transcript of the earnings call, please refer to the full earnings call transcript.