LKQ Withdraws 2026 Guidance as Europe Weighs on Q3 Earnings

LKQ (LKQ) withdrew its full-year 2026 guidance and suspended its strategic review after weak European operations weighed heavily on third-quarter earnings. The company also announced a CEO transition and brought in Alvarez & Marsal to help stabilize its European business, where an ERP implementation in Germany and volume declines in several markets contributed to a sharp drop in profitability.

Revenue for the three months ended September 30 fell 5.1% year over year to $3.32 billion, while organic parts and services revenue declined 5.4%. Segment EBITDA, a non-GAAP measure, decreased 25.1% to $296 million, and the corresponding margin contracted 240 basis points to 8.9%.

LKQ reported a net loss from continuing operations attributable to stockholders of $24 million, compared with income of $178 million a year earlier. Reported diluted loss per share was $0.09, versus earnings of $0.69 per share in the prior-year quarter. The latest results included an $88 million goodwill impairment related to the Specialty reporting unit and a $23 million impairment on assets held for sale associated with the expected divestiture of the company’s Romanian operations.

Adjusted net income declined to $127 million from $216 million, while adjusted diluted earnings per share fell 40.5% to $0.50 from $0.84.

European operations drive earnings decline

Europe was the principal drag on consolidated results. Segment revenue fell to $1.45 billion from $1.62 billion, with organic parts and services revenue down 9.8%. Foreign exchange reduced revenue by 1.2%, while acquisitions and divestitures contributed 0.8%.

LKQ attributed the organic decline to operational challenges arising from the ERP implementation in Germany, as well as lower volumes in the United Kingdom and Benelux. European Segment EBITDA dropped to $68 million from $162 million, and its margin narrowed to 4.6% from 10.0%.

Gross margin in Europe declined to 36.6% from 38.8%, reflecting lower revenue, reduced leverage of fixed central distribution costs, lower vendor rebates and inflationary pressures that were not fully offset by pricing. Selling, general and administrative expenses were nearly unchanged in dollar terms at $476 million but rose to 32.8% of revenue from 29.3%, with higher professional fees and transportation-related costs partly offset by productivity, restructuring and other savings.

The company said Alvarez & Marsal will advise on European operations on an interim basis, with priorities including stabilizing operations and ERP-related issues, restoring regional service levels and improving operating discipline and performance.

North America remains comparatively resilient

North American revenue decreased to $1.40 billion from $1.42 billion as organic parts and services revenue declined 2.4%. Lower repairable claims reduced volumes in salvage operations and the aftermarket and paint, body and equipment business, partly offset by pricing initiatives. LKQ said repairable claims continued to decline by between 1% and 3%.

Despite the revenue pressure, North American Segment EBITDA increased to $203 million from $199 million, and the margin improved to 14.4% from 14.0%. Productivity measures, cost savings and lower insurance costs helped reduce SG&A expenses, offsetting higher freight, vehicle and fuel costs.

Specialty revenue rose to $465 million from $457 million, supported by 0.9% organic growth and a 1.2% contribution from acquisitions and divestitures. Higher volumes in recreational vehicle and marine products were partly offset by declines in automotive product lines. Segment EBITDA nevertheless fell to $25 million from $34 million, with the margin declining to 5.5% from 7.3%. LKQ cited the acquisition of a lower-margin business and higher transportation and acquisition-related costs.

Guidance withdrawn as leadership changes

LKQ appointed Salvatore “Sal” Abbate as president and chief executive officer, effective December 15, 2026. Until then, Chairman John Mendel and Audit Committee Chair Sue Gove will lead the company through an interim Office of the CEO.

Alongside the leadership changes and withdrawal of its 2026 guidance, LKQ suspended its strategic review, including the process to sell the Specialty business. The presentation did not provide a timetable for resuming that review or issue replacement financial targets.

LKQ generated $372 million of free cash flow in the third quarter. For the first nine months of 2026, operating cash flow fell to $466 million from $733 million, while free cash flow declined to $336 million from $573 million. Both measures include continuing and discontinued operations.

The company returned $313 million to shareholders during the first nine months through $230 million of dividends and $83 million of share repurchases, equivalent to about 93% of year-to-date free cash flow. It repurchased 1.2 million shares for $30 million in the third quarter and approved a $0.30-per-share dividend payable December 3, 2026. The board also extended the share-repurchase authorization through October 25, 2028.

As of September 30, LKQ held $319 million in cash, carried $3.74 billion of total debt and reported available liquidity of $1.66 billion. Its total leverage ratio was 2.8 times. Key uncertainties identified in the presentation include the European operational disruption, continued weakness in repairable claims, inflationary and transportation costs, and the execution of efforts to restore service and operating performance in Europe.