Stock Story -
Automotive parts company LKQ (NASDAQ:LKQ) reported results in line with analysts' expectations in Q4 FY2023, with revenue up 16.7% year on year to $3.50 billion. It made a non-GAAP profit of $0.84 per share, improving from its profit of $0.78 per share in the same quarter last year.
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LKQ (LKQ) Q4 FY2023 Highlights:
- Revenue: $3.50 billion vs analyst estimates of $3.51 billion (small miss)
- EPS (non-GAAP): $0.84 vs analyst estimates of $0.76 (10.1% beat)
- Gross Margin (GAAP): 40%, down from 40.8% in the same quarter last year
- Organic Revenue was up 1.7% year on year
- Market Capitalization: $13.47 billion
A global distributor of vehicle parts and accessories, LKQ (NASDAQ:LKQ) offers its customers a comprehensive selection of high-quality, affordably priced automobile products.
Specialized Consumer ServicesSome consumer discretionary companies don’t fall neatly into a category because their products or services are unique. Although their offerings may be niche, these companies have often found more efficient or technology-enabled ways of doing or selling something that has existed for a while. Technology can be a double-edged sword, though, as it may lower the barriers to entry for new competitors and allow them to do serve customers better.
Sales GrowthA company’s long-term performance can give signals about its business quality. Any business can put up a good quarter or two, but many enduring ones muster years of growth. LKQ's annualized revenue growth rate of 3.1% over the last five years was weak for a consumer discretionary business. Within consumer discretionary, a long-term historical view may miss a company riding a successful new product or emerging trend. That's why we also follow short-term performance. LKQ's annualized revenue growth of 2.9% over the last two years aligns with its five-year revenue growth, suggesting the company's demand has been stable.
We can better understand the company's revenue dynamics by analyzing its organic sales, which strip out currency fluctuations and one-time events like acquisitions. Over the last two years, LKQ's organic sales averaged 3.7% year-on-year growth. Because this number aligns with its revenue growth during the same period, we can see the company's core operations drove most of its performance.
This quarter, LKQ's year-on-year revenue growth clocked in at 16.7%, and its $3.50 billion of revenue was line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 10.1% over the next 12 months, a deceleration from this quarter.
Operating MarginOperating margin is an important measure of profitability. It’s the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. Operating margin is also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
LKQ has done a decent job managing its expenses over the last eight quarters. The company has produced an average operating margin of 11%, higher than the broader consumer discretionary sector. In Q4, LKQ generated an operating profit margin of 7.9%, down 1.9 percentage points year on year.
Over the next 12 months, Wall Street expects LKQ to maintain its LTM operating margin of 9.8%.Key Takeaways from LKQ's Q4 ResultsIt was good to see LKQ beat analysts' EPS expectations this quarter. That stood out as a positive in these results. On the other hand, its organic revenue unfortunately missed and its operating margin fell short of Wall Street's estimates. Overall, the results could have been better. The company is down 2.6% on the results and currently trades at $49 per share.
