LKQ Corporation Q2 FY2025 earnings call

• Justin Jude has been in the CEO role for a year, with the team making tough decisions to reshape operations aligned with multiyear strategy. - Focus on additional cost-cutting measures (cutting $75M in costs, primarily in Europe and North America) and strategic review of business units. - North America's aftermarket collision parts business had slight growth, Canada's hard parts business growing. Europe facing economic softness and competition but making progress on SKU rationalization, private label penetration, and operations streamlining. Specialty showing improved results, Self Service with 10% EBITDA margin. - Created executive position for global talent development, over 25% of VP level and above roles refreshed in the past year.

North America: Organic revenue fell by 2.2% per day, less of a decline than the last 5 quarters, with aftermarket collision parts business witnessing slight growth in the quarter, and hard parts business in Canada continuing to grow. Repairable claims comps started to ease but June numbers were weaker than anticipated. Europe: Organic revenue decreased 4.9% or 3.8% on a per day basis, driven by difficult economic conditions, increased competition and operational challenges. SKU rationalization project in Europe aims to reduce complexity, with over 70% of product brands reviewed and 13,000 SKUs reduced, private label penetration up 20 bps year-to-date. Specialty: Organic revenue was largely flat year-over-year, the best quarterly year-over-year revenue performance since the fourth quarter of 2021. Self Service: Organic revenue was soft in the quarter from lower part volumes but delivered a 10% EBITDA margin.

• Lowered full year outlook due to North America's delayed repairable claims recovery, tariff disruptions, and Europe's persistent economic softness. - Expected reported organic parts and services revenue in the range of negative 150 basis points to negative 350 basis points. - Adjusted diluted EPS expected in the range of $3 to $3.30, a decrease from previous guidance. - Free cash flow expected to be in the range of approximately $600 million to $750 million, with $50 million reduction in capital spend.

• Broader challenges in the overall auto industry and macroeconomic environment, including rising input costs and uncertainties around tariffs. - Negative customer experiences and operational obstacles in Europe impacting revenue. - Uncertainty in repairable claims recovery due to ongoing insurance price increases and used car pricing trends.

Q: Talk about some of the increased competition in North America and used car pricing's impact on claims recovery A: Justin Jude said used car pricing showed some improvement but not enough to drive quick recovery, with repairable claims number having slight improvements but business operating well. Rick Galloway added about APU increase and business picking up market share Q: In Europe, competition and market softness A: Justin Jude said market is soft, in U.K. renegotiated contracts and lost one due to not chasing price down, but maintaining market share; also mentioned GSF and other competitors' impact Q: European personnel change and cost cuts impact A: Justin Jude felt confident in the European team with new skill sets, Rick Galloway said $75M cost cuts mostly from Europe, expected to be implemented by end of Q4 with full benefit in 2026 Q: Right to appraisal legislation and implications A: Justin Jude said too soon to tell impact, but monitoring it with government affairs department Q: Supplier production flexibility and tariff impact A: Justin Jude said some manufacturers looking at relocation but aftermarket collision historically in Taiwan, salvage has no tariff impact Q: Collision vs non-collision organic revenue growth in North America A: Rick Galloway said aftermarket volume up, but some mechanicals down more than expected, hard parts better than overall decline