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GuruFocus has detected 2 Warning Signs with LKQ Corp \$LKQ.
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LKQ Corp (NAS:LKQ)
Gross Profit
\$3,521 Mil (TTM As of Mar. 2017)

LKQ Corp's gross profit for the three months ended in Mar. 2017 was \$930 Mil. LKQ Corp's gross profit for the trailing twelve months (TTM) ended in Mar. 2017 was \$3,521 Mil.

Gross Margin is calculated as gross profit divided by its revenue. LKQ Corp's gross profit for the three months ended in Mar. 2017 was \$930 Mil. LKQ Corp's revenue for the three months ended in Mar. 2017 was \$2,343 Mil. Therefore, LKQ Corp's Gross Margin for the quarter that ended in Mar. 2017 was 39.70%.

LKQ Corp had a gross margin of 39.70% for the quarter that ended in Mar. 2017 => Competition eroding margins

During the past 13 years, the highest Gross Margin of LKQ Corp was 45.30%. The lowest was 39.05%. And the median was 42.20%.

Warning Sign:

LKQ Corp gross margin has been in long term decline. The average rate of decline per year is -1.9%.

Definition

Gross Profit is the different between the sale prices and the cost of buying or producing the goods.

LKQ Corp's Gross Profit for the fiscal year that ended in Dec. 2016 is calculated as

 Gross Profit (A: Dec. 2016 ) = Revenue - Cost of Goods Sold = 8584.031 - 5232.328 = 3,352

LKQ Corp's Gross Profit for the quarter that ended in Mar. 2017 is calculated as

 Gross Profit (Q: Mar. 2017 ) = Revenue - Cost of Goods Sold = 2342.843 - 1412.75 = 930

LKQ Corp Gross Profit for the trailing twelve months (TTM) ended in Mar. 2017 was 921.947 (Jun. 2016 ) + 883.412 (Sep. 2016 ) + 785.907 (Dec. 2016 ) + 930.093 (Mar. 2017 ) = \$3,521 Mil.

Gross Profit is the numerator in the calculation of Gross Margin:

LKQ Corp's Gross Margin for the quarter that ended in Mar. 2017 is calculated as

 Gross Margin (Q: Mar. 2017 ) = Gross Profit (Q: Mar. 2017 ) / Revenue (Q: Mar. 2017 ) = (Revenue - Cost of Goods Sold) / Revenue = 930 / 2342.843 = 39.70 %

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

A positive Gross Profit is only the first step for a company to make a net profit. The gross profit needs to be big enough to also cover related labor, equipment, rental, marketing/advertising, research and development and a lot of other costs in selling the products.

Explanation

Warren Buffett believes that firms with excellent long term economics tend to have consistently higher margins.

Durable competitive advantage creates a high Gross Margin because of the freedom to price in excess of cost. Companies can be categorized by their Gross Margin

1. Greater than 40% = Durable competitive advantage
2. Less than 40% = Competition eroding margins
3. Less than 20% = no sustainable competitive advantage
Consistency of Gross Margin is key

LKQ Corp had a gross margin of 39.70% for the quarter that ended in Mar. 2017 => Competition eroding margins

Related Terms

Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

LKQ Corp Annual Data

 Dec07 Dec08 Dec09 Dec10 Dec11 Dec12 Dec13 Dec14 Dec15 Dec16 Gross_Profit 506 844 928 1,093 1,392 1,724 2,075 2,652 2,834 3,352

LKQ Corp Quarterly Data

 Dec14 Mar15 Jun15 Sep15 Dec15 Mar16 Jun16 Sep16 Dec16 Mar17 Gross_Profit 665 699 724 713 697 760 922 883 786 930
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