LKQ Q2 Deep Dive: Cost Controls and Leadership Changes Amid Ongoing Market Pressures

July 25, 2025 at 01:33 AM EDT

LKQ Cover Image

Automotive parts company LKQ (NASDAQ: LKQ) met Wall Street’s revenue expectations in Q2 CY2025, but sales fell by 1.9% year on year to $3.64 billion. Its non-GAAP profit of $0.87 per share was 5.8% below analysts’ consensus estimates.

Is now the time to buy LKQ? Find out in our full research report (it’s free).

LKQ (LKQ) Q2 CY2025 Highlights:

Revenue: $3.64 billion vs analyst estimates of $3.66 billion (1.9% year-on-year decline, in line)
Adjusted EPS: $0.87 vs analyst expectations of $0.92 (5.8% miss)
Adjusted EBITDA: $430 million vs analyst estimates of $446.5 million (11.8% margin, 3.7% miss)
Management lowered its full-year Adjusted EPS guidance to $3.15 at the midpoint, a 11.3% decrease
Operating Margin: 8.6%, in line with the same quarter last year
Organic Revenue fell 3.1% year on year, in line with the same quarter last year
Market Capitalization: $8.16 billion

StockStory’s Take

LKQ’s second quarter results were met with a significant negative market reaction, as the company’s non-GAAP profit came in below Wall Street’s expectations despite revenue meeting consensus estimates. Management pointed to persistent softness in both North American and European end markets, with CEO Justin Jude noting that “the results are yet to show this progress and the macro headwinds necessitated our revised guidance.” Leadership highlighted heightened competition, weak repairable claims volumes, and operational missteps in Europe as primary contributors to underperformance.

Looking forward, LKQ’s leadership is taking a cautious stance, lowering full-year profit guidance in response to ongoing industry uncertainty and delayed market recovery. CEO Justin Jude emphasized upcoming cost-cutting efforts, especially in Europe, and a strategic review of the company’s business units, stating, “We are going to push harder and move faster.” Management also warned that tariffs and macroeconomic dynamics could continue to pressure margins and cash flow in the near term.

Key Insights from Management’s Remarks

Management cited ongoing macroeconomic headwinds, operational challenges in Europe, and increased competition as primary reasons for missed profit expectations and the need for additional cost measures.

North America outperformed repair trends: Organic revenue fell less than the broader repairable claims market, with LKQ gaining market share despite a challenging backdrop. CEO Justin Jude noted, “Our aftermarket collision parts business witnessed a slight growth in the quarter,” even as overall claims declined.
European operational reset underway: Leadership acknowledged self-inflicted service issues and underperformance in Europe, attributing them to legacy leadership and operational complexity. The company has implemented significant leadership changes, with over 25% of VP-level and above roles refreshed, and is now targeting $75 million in additional cost cuts, largely in Europe.
Tariffs and pricing actions: Management reported successfully passing tariff-related costs through to customers via price increases in North America, but noted that these actions have yet to fully offset competitive margin pressures. CFO Rick Galloway explained, “We think we have the ability to pass through all of our tariff costs.”
SKU rationalization and supply chain simplification: The company has reviewed more than 70% of product brands in Europe, reducing inventory complexity by cutting 13,000 SKUs and advancing its private label penetration target. These efforts are aimed at improving service levels and margin performance.
Specialty and Self Service segments stabilize: Specialty organic revenue was flat year over year, marking the best performance since 2021, while Self Service maintained double-digit EBITDA margins despite lower volumes. Management sees positive trends in these areas as potential early signs of recovery.

Drivers of Future Performance

Management expects continued macroeconomic softness, competitive pressures, and cost restructuring to shape results through the rest of the year.

Delayed market recovery: LKQ anticipates minimal improvement in repairable claims volumes due to persistent high insurance rates and subdued used car pricing, particularly in North America. CEO Justin Jude cautioned that “it is prudent to assume minimal market recovery in the back half of the year.”
Cost reduction and restructuring: The company is aggressively targeting an additional $75 million in cost removals, mainly in Europe, alongside ongoing productivity initiatives and a strategic review of underperforming business units. CFO Rick Galloway stated these actions should be “primarily implemented by the end of Q4.”
Tariffs and working capital headwinds: While management is confident in its ability to pass through tariff costs, ongoing tariff uncertainty and potential impacts on working capital are expected to remain challenges for cash flow and profitability.

Catalysts in Upcoming Quarters

In upcoming quarters, the StockStory team will be monitoring (1) the pace and effectiveness of cost reduction and leadership changes in European operations, (2) any signs of stabilization or recovery in North American repairable claims volumes, and (3) the company’s ability to manage tariff-related headwinds and maintain price discipline. Execution on SKU rationalization and progress in specialty segments will also be key indicators.

LKQ currently trades at $31.94, down from $38.62 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free).

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