LKQ Corp. Reports Operating Results (10-Q)

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Jul 27, 2012
LKQ Corp. (LKQX, Financial) filed Quarterly Report for the period ended 2012-06-30.

Lkq Corporation has a market cap of $5.02 billion; its shares were traded at around $0 with a P/E ratio of 21.8 and P/S ratio of 1.5. Lkq Corporation had an annual average earning growth of 28.6% over the past 10 years.

Highlight of Business Operations:

Revenue. Our revenue increased 32.5% to $1.0 billion for the three month period ended June 30, 2012 from $759.7 million for the comparable period of 2011. The increase in revenue was primarily due to 29% acquisition related revenue growth and 3.7% organic growth, offset by 0.3% unfavorable impact from foreign exchange in our Canadian operations. Acquisition related revenue growth for the quarter totaled $220.4 million, which included $157.8 million from our fourth quarter 2011 acquisition of ECP, a U.K.-based automotive aftermarket product distributor. ECP also generated $7.4 million in revenue growth from new branch openings since the acquisition, which we include in our organic revenue growth. Our organic revenue from the sale of recycled and remanufactured products grew 8.5% primarily as a result of higher volumes, which resulted from higher inventory purchases that contributed to a greater volume of parts available for sale. Organic growth in aftermarket, other new and refurbished revenue of 4.6% was driven by higher sales volumes. However, we believe that the sales volumes in the second quarter of 2012 continued to be affected by the milder winter weather conditions noted in the first quarter of 2012, as fewer and less severe accidents resulted in a reduction in the backlog of insurance claims activity carrying over into April. The organic growth in parts and services revenue was partially offset by an 8.2% reduction in other revenue primarily due to lower revenue from our furnace operations as a result of declining scrap prices.

Cost of Goods Sold. Our cost of goods sold increased to 58.1% of revenue in the three month period ended June 30, 2012 from 57.6% of revenue in the comparable period of 2011. Our acquisition of ECP, which generates lower gross margins than our North American business because of a greater weighting on lower margin mechanical products, increased our cost of goods sold as a percentage of revenue by 0.4%. In addition, we experienced gross margin compression in the second quarter of 2012 as scrap prices decreased compared to the prior year quarter while we continued to pay higher prices for vehicles primarily in our self service business, resulting in cost of goods sold increasing by 0.8% of revenue. These increases in our cost of goods sold were partially offset by a gain on a lawsuit settlement with certain of our aftermarket product suppliers of $8.4 million, which reduced cost of goods sold by 0.8% of revenue. Refer to Note 7, Commitments and Contingencies to the unaudited consolidated condensed financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on the lawsuit settlement.

Revenue. Our revenue increased 31.8% to $2.0 billion for the six month period ended June 30, 2012 from $1.5 billion for the comparable period of 2011. The increase in revenue was primarily due to 28.5% acquisition related revenue growth and 3.5% organic growth, offset by 0.2% unfavorable impact from foreign exchange in our Canadian operations. Acquisition related revenue growth for the first half of 2012 totaled $440.8 million, which included $315.9 million from our fourth quarter 2011 acquisition of ECP. ECP also generated $10.0 million in revenue growth from new branch openings since the acquisition, which we include in our organic revenue growth. Our organic revenue from the sale of recycled and remanufactured products grew 8.5% primarily as a result of higher volumes, which resulted from higher inventory purchases that contributed to a greater volume of parts available for sale. Our organic revenue growth in aftermarket, other new and refurbished products of 2.3% for the six months ended June 30, 2012 reflects the impact of milder winter weather conditions. Sales volumes in the first quarter and into the beginning of the second quarter of 2012 remained flat with the prior year period as the milder winter weather contributed to fewer and less severe vehicle accidents, resulting in lower insurance claims activity. The revenue effect from the decrease in insurance claims activity in the first quarter and into April was more than offset by shifts in product mix toward products with a higher average sales price combined with higher sales volumes later in the second quarter. The organic growth in parts and services revenue was partially offset by a 3.4% reduction in other revenue primarily due to lower revenue from our furnace operations as a result of declining scrap prices.

Cost of Goods Sold. Our cost of goods sold increased to 57.4% of revenue in the six month period ended June 30, 2012 from 56.9% of revenue in the comparable period of 2011. Our acquisition of ECP increased our cost of goods sold as a percentage of revenue by 0.5% as a result of factors described in the discussion of our three month comparative results above. In addition, we experienced gross margin compression in the first half of 2012 as scrap prices decreased compared to the prior year period while we continued to pay higher prices for vehicles primarily in our self service business, resulting in cost of goods sold increasing by 0.8% of revenue. These increases in our cost of goods sold were partially offset by a gain on lawsuit settlements with certain of our aftermarket product suppliers totaling $16.7 million, which reduced cost of goods sold by 0.8% of revenue. Refer to Note 7, Commitments and Contingencies to the unaudited consolidated condensed financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on the lawsuit settlements.

Net cash provided by operating activities totaled $121.0 million for the six months ended June 30, 2012, compared to $101.1 million for the same period of 2011. In 2012, our EBITDA increased by $64.7 million compared to the prior year period, due to both acquisition related growth and organic growth. The increase in EBITDA was partially offset by $19.5 million in higher income tax payments compared to income tax payments made in the first half of 2011 as a result of greater pretax earnings. The first six months of 2012 reflected higher bonus payments of $1.8 million compared to the prior year as well as $5.9 million of payments under our long term incentive plan. Insurance policy payments in the first half of 2012 were $3.7 million higher than the prior year period primarily as a result of additional insurance policies for our European operations acquired in the fourth quarter of 2011. Due to higher outstanding debt levels, cash payments for interest exceeded payments in the prior year period by $2.3 million. Other operating cash outflows during the first half of 2012 exceeded the prior year period primarily due to the timing of payments of various accrued liabilities.

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