LKQ - LKQ Corp.

[Ross812]

Another good quarter:

 

Revenue growth of 9.1% to a record $1.77 billion

Organic revenue growth for parts and services of 7.5%

First quarter 2015 diluted EPS of $0.35; adjusted EPS of $0.36

Affirms full year 2015 guidance

 

Company Outlook

 

2015 Guidance

Organic revenue growth for parts & services 6.5% to 9.0%

Net income                                             $420 million to $450 million

Diluted EPS                                             $1.36 to $1.46

Cash flow from operations                     Approximately $425 million

Capital expenditures                                     $150 million to $180 million

 

LKQ's book seems to be working so far in Europe. The strong dollar is depressing reported cash flow but is allowing them to expand cheaply in the EU. I've increased LKQ to 10% of my portfolio in the passed few months.

 

[Ross812]

LKQ aquiers two new distributors in the US:

 

http://globenewswire.com/news-release/2015/07/08/750701/0/en/LKQ-Corporation-Acquires-PartsChannel.html

 

http://www.streetinsider.com/Corporate+News/LKQ+Corporation+(LKQ)+to+Acquire+Coast+Distribution+System+(CRV)+in+$29M+Deal/10712133.html

 

There has been a lot of talk about high moat businesses lately. This is one of the strongest I've seen.

[Ross812]

LKQ reported this morning and continues to tear it up:

 

Q Corporation Announces Results for Second Quarter 2015

 

    Revenue growth of 7.5% to a record $1.84 billion

    Organic revenue growth for parts and services of 7.5%

    Net income growth of 14.1% to $119.7 million

    Diluted EPS increased 14.7% to $0.39

    Annual guidance updated

 

Outlook:

 

Company Outlook

 

The Company updated its guidance for 2015.

                                                          Updated Guidance       Prior Guidance

Organic revenue growth (parts & services) 7.0% to 8.5%                 6.5% to 9.0%

Adjusted net income                       $425 million to $445 million $420 million to $450 million

Adjusted diluted EPS                                 $1.38 to $1.45                  $1.36 to $1.46

Cash flow from operations                   Approximately $450 million      Approximately $425 million

Capital expenditures                         $150 million to $180 million $150 million to $180 million

 

 

 

[Ross812]

LKQ was added to the S&P 500 last Friday.

 

Trading at 18x forward PE its not terribly expensive and should continue to grow at a resonable pace for the foreseeable future.

[walkie518]

trading near the 52-week low...I don't understand what is underpinning weakness in the stock, any ideas?

[Okonomen]

Great discussion here. I really like the automotive aftermarket industry. AZO is my largest position. I have also recently stumbled over LKQ and see some really interesting characteristics with the industry and the company. However, I also see some warning signs:

 

1) Mgmt performance pay is tied up on revenue growth, EPS growth and ROE. This induces M&A behavior and growth at any cost (almost) instead of using metrics such as e.g. ROIC, FCF or ebit-margin

 

2) As Ross mentions, acquisitions gives LKQ scale etc but this also bears a lot of risk. I generally prefer to see companies grow organically as each and every acquisition gives some risk and most acquisitions are bought too expensive. Just look at stericycle. The reasoning with M&A is quite the same but they have severe hangovers from all that M&A and their balance sheet is all air

 

3) The company's reported ROIC is only around 9-10%. If you include all intangibles - which I think one should when the biz is so much into M&A - the ROIC is maybe even smaller?

 

However, I really dig these recession proof industries and especially automotive aftermarket. Do you know any other companies in such industries? I mainly know about AZO, ORLY, GPC, AAP etc

 

[walkie518]

Great discussion here. I really like the automotive aftermarket industry. AZO is my largest position. I have also recently stumbled over LKQ and see some really interesting characteristics with the industry and the company. However, I also see some warning signs:

 

1) Mgmt performance pay is tied up on revenue growth, EPS growth and ROE. This induces M&A behavior and growth at any cost (almost) instead of using metrics such as e.g. ROIC, FCF or ebit-margin

 

2) As Ross mentions, acquisitions gives LKQ scale etc but this also bears a lot of risk. I generally prefer to see companies grow organically as each and every acquisition gives some risk and most acquisitions are bought too expensive. Just look at stericycle. The reasoning with M&A is quite the same but they have severe hangovers from all that M&A and their balance sheet is all air

 

3) The company's reported ROIC is only around 9-10%. If you include all intangibles - which I think one should when the biz is so much into M&A - the ROIC is maybe even smaller?

 

However, I really dig these recession proof industries and especially automotive aftermarket. Do you know any other companies in such industries? I mainly know about AZO, ORLY, GPC, AAP etc

might be worth noting that GPC is planning on merging Essendant with the SP Richards distribution business then spinning the stock:

http://genuineparts.investorroom.com/2018-04-12-Essendant-And-Genuine-Parts-Companys-S-P-Richards-Business-To-Combine-To-Form-Stronger-More-Competitive-National-Business-Products-Distributor

[mateo999]

Thanks for flagging the GPC spin. I think esnd is probably a short here. Anyone look at this?

[Jurgis]

ValueAct acquired 5.2% position (highlighted in this week's Barron's). Stock jumped a bit.

 

I took a look at Morningstar numbers.

The 10 year growth is impressive. The current FCF (including acquisitions) / EV is not that great.

Since it seems from this thread that growth was acquisition driven, I'll probably pass. Just wanted to bump the thread anyway.  8)