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Shares of LKQ Corporation Slump 17% After Rising Costs Weigh on the Bottom Line

By Daniel Miller – Apr 26, 2018 at 2:31PM

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Despite posting healthy revenue growth compared to the prior year, LKQ's adjusted earnings per share fell short of expectations.

What happened

Shares of LKQ (LKQ -2.16%), a global distributor of automotive replacement parts, components, and systems with operations in North America, Europe, and Taiwan, are down 17% as of 11:45 a.m. EDT after the company posted a worse-than-expected first quarter thanks to rising costs.

So what

LKQ's top line managed to perform well with revenue jumping 16% to $2.72 billion, compared to the prior year, with 3.7% organic revenue growth for parts and services -- that topped Wall Street estimates calling for $2.63 billion. The healthy top-line growth didn't trickle down to the bottom line with adjusted earnings per share checking in at $0.55 per share, lower than analysts' estimates calling for $0.59 per share.

LKQ President and Chief Executive Officer Dominick Zarcone said this in a press release:

I am very pleased with the 6.5% organic parts and services growth in our North America segment. Although we faced a few revenue headwinds in Europe and our Specialty business and experienced certain near-term cost pressures in the quarter, we are actively addressing the issues and I am confident that we have solid plans to quickly return to our historical levels of growth and profitability.

A person replacing a vehicle light bulb component.

Image source: Getty Images.

Now what

Revenue headwinds in Europe and rising costs forced management to cut its guidance for 2018. Organic revenue growth is now expected to check in between 4% to 5.5% for the full year, lower than the original range of 4% to 6% and adjusted EPS was lowered $0.10 at each end of the range to between $2.20 and $2.30 per share. Management has its challenges ahead to offset rising raw material costs and get its business back firing on all cylinders.

Daniel Miller has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends LKQ. The Motley Fool has a disclosure policy.

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$47.15 (-2.16%) $-1.04

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