LKQ Corporation reported fourth quarter and full year 2020 results that reflect continued improvement in operational and balance sheet productivity and further debt reduction, despite softening revenue trends in many markets as a result of mobility restrictions from COVID-19.
“Our focus throughout the COVID-19 crisis has been the health and safety of our employees as well as our customers. Despite the headwinds we faced throughout 2020, we were able to execute on our key operating initiatives of pursuing profitable revenue, enhanced margins and free cash flow generation. Additionally, the cost reductions our teams implemented in 2020 to confront the pandemic’s impact on demand are lessons that we will apply to our operations in 2021 and beyond,” noted Dominick Zarcone, President and Chief Executive Officer. “We again delivered strong quarterly results, with the fourth quarter 2020 being the second highest quarterly earnings, and highest fourth quarter earnings, in the Company’s history. Additionally, we achieved our highest level of annual free cash flow at $1.3 billion and North America’s highest annual segment EBITDA margin of 16.8%. Europe completed a strong second half with a Segment EBITDA margin of 8.9%, above the range of 8.0% to 8.5% presented at our September 2020 Investor Day. As we look to the year ahead, I am confident that the strength of our operations, balance sheet and free cash flow all position LKQ for solid growth and value creation for our stakeholders.”
Fourth Quarter and Full Year 2020 Financial Results
Revenue for the fourth quarter of 2020 was $2.95 billion, a decrease of 1.9% as compared to $3.01 billion in the fourth quarter of 2019. For the fourth quarter of 2020, parts and services organic revenue decreased 5.2% (6.1% on a per day basis), while the net impact of acquisitions and divestitures decreased revenue 0.8% and foreign exchange rates increased revenue 2.7%, for a total parts and services revenue decline of 3.3%.
Net income1 for the fourth quarter of 2020 was $180 million as compared to $140 million for the same period in 2019, an increase of 28.6%. Diluted earnings per share1 for the fourth quarter was $0.59 as compared to $0.46 for the same period of 2019, an increase of 28.3%.
On an adjusted basis, net income1 in the fourth quarter was $212 million compared to $167 million in the same period of 2019, a 26.7% increase. Adjusted diluted earnings per share1 for the fourth quarter was $0.69 as compared to $0.54 for the same period of 2019, a 27.8% increase.
Revenue for the full year of 2020 was $11.6 billion, a decrease of 7.0% as compared to $12.5 billion for the same period of 2019. For the full year of 2020, parts and services organic revenue decreased 7.6% (8.2% on a per day basis), while the net impact of acquisitions and divestitures decreased revenue 0.5% and foreign exchange rates increased revenue 0.5%, for a total parts and services revenue decline of 7.7%.
Net income1 for the full year of 2020 was $639 million as compared to $541 million for the same period in 2019, an increase of 18.1%. Diluted earnings per share1 for the full year of 2020 was $2.09 as compared to $1.74 for the same period of 2019, an increase of 20.1%.
On an adjusted basis, net income1 for the full year of 2020 was $777 million compared to $736 million in the same period of 2019, a 5.6% increase. Adjusted diluted earnings per share1 for the full year of 2020 was $2.55 as compared to $2.37 for the same period of 2019, a 7.6% increase.
1 References to Net income and Diluted earnings per share, and the corresponding adjusted figures, in this release reflect amounts from continuing operations attributable to LKQ stockholders.
Cash Flow and Balance Sheet
Cash flow from operations totaled $309 million during the fourth quarter of 2020, for a year-to-date total of $1.4 billion. Free cash flow in the quarter totaled $246 million, bringing the total to $1.3 billion for the full year of 2020. The Company made $327 million of net repayments on borrowings during the fourth quarter, for a total year-to-date debt reduction of $1.4 billion. As of December 31, 2020, LKQ’s balance sheet reflected total debt, net of debt issuance costs, of $2.9 billion and net debt of $2.6 billion, the lowest net debt level since the fourth quarter of 2015. Net leverage, as defined in our credit facility, decreased to 1.9x EBITDA. As of December 31, 2020, the Company had approximately $2.9 billion in available liquidity, including $2.5 billion available under our credit facilities and $312 million of cash and cash equivalents.
During the fourth quarter of 2020, the Company repurchased approximately $29 million of its common stock and for the full year invested $117 million in the program. Since initiating our plan in late October 2018, the Company has repurchased 17.3 million shares for a total of $469 million.
Varun Laroyia, Executive Vice President and Chief Financial Officer commented: “We expect our global teams to build off the solid 2020 performance and execute on our ongoing operational excellence initiatives in 2021. While the recovery in miles traveled slowed in the fourth quarter, we anticipate a gradual recovery in the second half of the year as the vaccination efforts take hold. Improving revenue trends combined with our improving cost structure should drive increased profitability relative to 2020 and contribute to another strong year of cash generation.”
For 2021, management is anticipating the following:
(a) Amounts reflect continuing operations
(b) Non-GAAP measure. See the table accompanying this release that reconciles the forecasted U.S. GAAP measure to the forecasted adjusted measure, which is non-GAAP.
Our outlook for the full year 2021 is based on recent conditions, including scrap and precious metals prices remaining at recent prices and exchange rates for the British pound, Euro and Canadian dollar holding near recent levels. Our outlook is also based on management’s current expectations regarding the recovery from the coronavirus outbreak and the impact of the United Kingdom’s exit from the European Union. Changes in these conditions may impact our ability to achieve the estimates. Adjusted figures exclude (to the extent applicable) the impact of restructuring and acquisition related expenses; amortization expense related to acquired intangibles; excess tax benefits and deficiencies from stock-based payments; losses on debt extinguishment; impairment charges; and gains and losses related to acquisitions or divestitures (including changes in the fair value of contingent consideration liabilities).
Non-GAAP Financial Measures
This release contains and management’s presentation on the related conference call will refer to non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. Included with this release are reconciliations of each non-GAAP financial measure with the most directly comparable financial measure calculated in accordance with GAAP.
Conference Call Details
LKQ will host a conference call and webcast on February 18, 2021 at 8:00 a.m. Eastern Time (7:00 a.m. Central Time) with members of senior management to discuss the Company’s results. To access the investor conference call, please dial (833) 236-5754. International access to the call may be obtained by dialing (647) 689-4182. The investor conference call will require you to enter conference ID: 3357956#.
Webcast and Presentation Details
The audio webcast and accompanying slide presentation can be accessed at (www.lkqcorp.com) in the Investor Relations section.
A replay of the conference call will be available by telephone at (800) 585-8367 or (416) 621-4642 for international calls. The telephone replay will require you to enter conference ID: 3357956#. An online replay of the audio webcast will be available on the Company’s website. Both formats of replay will be available through March 4, 2021. Please allow approximately two hours after the live presentation before attempting to access the replay.
About LKQ Corporation
LKQ Corporation (www.lkqcorp.com) is a leading provider of alternative and specialty parts to repair and accessorize automobiles and other vehicles. LKQ has operations in North America, Europe and Taiwan. LKQ offers its customers a broad range of OE recycled and aftermarket parts, replacement systems, components, equipment, and services to repair and accessorize automobiles, trucks, and recreational and performance vehicles.