LKQ (NASDAQ:LKQ) used its fourth-quarter earnings call to highlight strong cash generation and portfolio simplification in 2025, while also acknowledging ongoing demand and pricing pressure in both North America and Europe. Management also said the company’s board has initiated a comprehensive review of strategic alternatives, citing a belief that the current stock price does not reflect the underlying value of the businesses.
Strategic actions: portfolio simplification and board-led review
Chief Executive Officer Justin Jude opened the call by pointing to progress against objectives set at the company’s 2024 Investor Day. He said LKQ delivered on a prior commitment to generate $825 million of free cash flow in 2025, despite what he described as multiple headwinds.
In addition, Jude said LKQ’s board formally initiated a “comprehensive review” in late January 2026. He said management and the board are aligned that the company’s stock price does not reflect the “true value or long-term potential” of LKQ’s businesses and that the review is intended to explore whether “alternative structures could unlock value more effectively.” Jude added that the company would not answer questions or comment further on the strategic review process until additional disclosure is appropriate or required.
Fourth-quarter financial results and cash flow
Chief Financial Officer Rick Galloway reported fourth-quarter revenue from continuing operations of $3.3 billion, up 2.7% year-over-year. Diluted earnings per share were $0.29, which included a $52 million goodwill impairment related to the Specialty business, equal to about $0.20 per share. On an adjusted basis, diluted EPS was $0.59, compared with $0.78 in the prior year on a comparable basis.
Galloway noted that the prior-year quarter included a $0.10 per share benefit from a non-recurring legal settlement in North America. He said share repurchases and interest expense each added $0.01 to earnings in the quarter, while favorable foreign exchange and tax rates contributed an additional $0.02 each, but those benefits were more than offset by organic revenue declines and lower EBITDA in North America and Europe.
For the full year, LKQ reported diluted EPS of $2.31 and adjusted diluted EPS of $3.01, which Galloway said was at the lower end of the range provided in October.
Cash generation was a central theme. Free cash flow was $274 million in the fourth quarter, bringing full-year free cash flow to $847 million, which management said exceeded expectations and was driven primarily by trade working capital initiatives. LKQ returned $116 million to shareholders during the quarter via share repurchases and dividends, and $469 million in total during 2025, which Galloway said represented 55% of free cash flow and exceeded the capital return commitment outlined at the 2024 Investor Day.
North America: repairable-claims pressure, tariffs, and pricing competition
In North America, Jude said organic revenue decreased 1% on a per-day basis in the fourth quarter and declined 1.9% for the full year, reflecting “weak repairable claims.” He said LKQ gained market share by deepening relationships with multi-shop operators (MSOs) and insurers, maintaining pricing discipline, and leveraging its branch and distribution network.
Management described a sequential improvement in repairable-claims trends through the year. Jude said repairable claims were down about 10% in the first quarter and improved each quarter, reaching a range of down 4% to 6% in the fourth quarter.
During Q&A, Jude said LKQ’s volume with MSOs was up “in the teens” year-over-year, while MSOs the company speaks with were “probably flat to slightly up a few percent.” He said LKQ was up with every MSO it serves and attributed share gains to price competitiveness, product quality, service levels, and the company’s coverage. He added that MSOs often have direct insurance-carrier contracts that drive higher alternative parts utilization, which benefits LKQ, though the company did not provide specific utilization metrics.
Galloway said North America remained constrained in its ability to fully pass through higher costs while maintaining margins, citing tariffs and competitive pricing. Segment EBITDA margin in North America was 12.7%, down 380 basis points year-over-year. He attributed approximately 140 basis points of the decline to gross margin, driven by tariff pass-through dynamics and customer mix, and about 260 basis points to overhead leverage, primarily reflecting the absence of the prior-year legal settlement benefit.
Looking to 2026, Galloway said the company expects North America EBITDA margins to be “slightly down from 2025” as LKQ annualizes the impact of tariffs.
Jude also discussed pricing competition, saying LKQ competes not only with alternative parts providers but also OEMs, and that in a compressed market with lower repairable claims, competitors can become more aggressive on price. He said LKQ has been implementing AI-driven capabilities with a partner to make pricing more real-time and responsive at the SKU and regional level, including identifying opportunities to raise prices on slower-moving parts while remaining competitive on faster-moving items.
Europe: weak demand, private label push, SKU rationalization, and margin targets
In Europe, Jude said organic revenue declined 5.2% per day in the fourth quarter and 3.9% for the full year. He attributed the decline to weak consumer confidence, macro uncertainty, and competitive pricing pressure. In response, he said LKQ implemented more aggressive pricing in select markets to protect share and accelerated private label initiatives, including expanded inventory and introductory pricing to drive adoption.
Management acknowledged near-term pressure from these actions. Jude said the private label push and other moves pressured revenue and margins in the near term but were expected to produce long-term benefits. He also said LKQ completed a review of more than 85% of its European SKU portfolio and had delisted 71,000 SKUs, or roughly half of its overall target.
Galloway reported Europe segment EBITDA margin declined 180 basis points to 8.3% in the quarter. He said gross margin fell about 160 basis points due to heightened price competition and higher input costs, while productivity and restructuring initiatives partially offset the impact of lower volumes.
Management reiterated margin improvement goals for 2026. Galloway said the company expects Europe to return to “near double-digit EBITDA” in 2026 through execution on strategic initiatives and additional cost actions. In Q&A, he said LKQ still sees the 200 basis points of margin expansion previously discussed as largely within its control, pointing to benefits expected in the back half of the year from SKU rationalization efforts.
Jude said a key system integration is expected to go live in early second quarter 2026 and described it as a catalyst for cost reduction opportunities, including ERP migration in a region. He also said pricing would be part of the European improvement plan, but that the majority of expected gains would come from cost actions the company can control.
Specialty performance and potential sale process
In the Specialty segment, Jude said organic revenue grew 7.8% per day in the fourth quarter and 2.7% for the full year. He said the segment achieved positive organic growth for a second consecutive quarter after returning to growth for the first time in 14 quarters in the prior quarter. Galloway reported Specialty EBITDA margin of 4.5%, about 40 basis points better than last year, citing strong cost control.
Management reiterated that LKQ is exploring a potential sale of the Specialty segment. Jude said interest “remains robust” and that the company expects to provide updates in the first half of 2026 as appropriate. In Q&A, he said Specialty’s recovery was “across the board,” including both automotive accessories and RV.
For 2026, LKQ guided to organic parts and services revenue growth of between negative 0.5% and positive 1.5%, with North America expected to be slightly positive, Europe slightly negative, and Specialty closer to mid-single-digit growth. Adjusted diluted EPS is expected to be $2.90 to $3.20, and free cash flow is expected to be $700 million to $850 million, with the midpoint reflecting more normalized working capital versus 2025.
Management said it is not assuming a meaningful market recovery in its guidance and is keeping assumptions conservative until sustained volume improvements are evident. Still, Jude pointed to early indicators in North America, including lower insurance premiums and rising used car prices, and said major insurers have suggested claims could return to historical patterns by late 2026.
About LKQ (NASDAQ:LKQ)
LKQ Corporation is a leading provider of alternative and specialty parts to repair and accessorize automobiles and other vehicles. The company supplies a broad range of replacement components, including recycled original equipment manufacturer (OEM) parts, aftermarket parts, refurbished and remanufactured items. Its products support collision repair, mechanical repair and performance enhancement needs across passenger cars, heavy trucks and recreational vehicles.
Through a combination of in-house operations and strategic acquisitions, LKQ has developed a comprehensive product portfolio that extends beyond core replacement parts.
