What is structurally driving the improvement in repairable claims from 4%-6% down to 2%-4% down?

The improvement is primarily driven by increases in used car values, which directly impact the total loss threshold. Used car values increased 3.6% in Q1, with March alone up 6.2%. Easing auto insurance premiums are also a long-term benefit, changing consumer behavior and further supporting repairable claims. “So through Q1, used car went up 3.6%, 6.2% alone in March. And so if you think about the estimating process, as soon as an estimate is written, it's immediately compared to that used car value.”

How are employees adapting to the new ERP system in Europe, and when are operational benefits expected?

The ERP system aims to create pan-European efficiencies, standardize operations, and improve customer interfaces. Employee commitment is high, with 100% representation at branches for conversion training. While intense, the project is progressing ahead of expectations, with daily improvements. Operational benefits are expected to materialize as the system optimizes post-conversion. “One good stat is 1 of our prep to go live was on Easter Monday over there. And most -- if you can imagine, most of Europeans take those all days off, we had 100% representation at our branches on that conversion training, which just shows how much the employees are committed to this process as well.”

Can you elaborate on the signs of improvement in Europe and the timing for migrating from introductory to regular pricing for private label products?

Europe started soft, similar to Q4, but saw continual demand improvements in February and March, with April showing similar trends. For private label, introductory pricing is used to encourage adoption. As volume grows (25.3% in Q1), plans are in place to gradually increase prices throughout 2026, with full effect in 2027, as customers gain confidence in product quality. “We have plans right now as we grow that volume, which I think at 25.3% for Q1 to start ratcheting up the prices throughout 2026, with full effect in 2027.”

LKQ

LKQ (LKQ) Q1 FY26 earnings call: guidance and Q&A

Earnings call· Mar 2026 (Q1 FY26)· Consumer Discretionary· Apr 30, 2026

Source: earnings call transcript

Executive summary

LKQ Q1 FY26 — Solid Progress and Strategic Review Update

LKQ reported solid Q1 FY26 results, driven by operational discipline and market share gains, particularly in North America where improving demand trends are evident. Europe showed sequential improvement despite a mixed macro backdrop, while the specialty segment continued its positive organic growth trajectory. The company is also actively engaged in a comprehensive strategic review to explore alternatives for maximizing long-term shareholder value, treating the process with urgency and thoroughness.

Highlights

North America organic revenue decline improved to 0.5% (per day basis) in Q1 FY26, an improvement from 4.1% last year and 1% in Q4 FY25.
Aftermarket collision product line surpassed segment growth, with alternative parts utilization reaching a record high of nearly 40% through February.
Alitec (calibrations & diagnostics) delivered strong organic growth and healthy EBITDA margins in the quarter.
Specialty segment delivered its third consecutive quarter of positive organic growth, up 3.4% in Q1 FY26.
The company reaffirmed its full-year guidance for organic parts and services revenue, adjusted EPS, and free cash flow.

Concerns

Adjusted diluted EPS decreased to $0.67 in Q1 FY26, compared to $0.74 in the prior year.
Free cash flow was negative $96 million in Q1 FY26, compared to negative $57 million a year ago, reflecting normal Q1 working capital seasonality.
North America segment EBITDA declined 130 basis points year-over-year to 14.1% due to the dilutive effect of tariff pass-through and customer mix.
Europe segment EBITDA declined 150 basis points to 7.8% due to pressured organic volumes, competitive pricing, and higher input costs.
Specialty EBITDA decreased by $3 million, primarily due to $6 million in higher-than-normal credit losses related to a nontrade receivable.
Geopolitical tensions introduced uncertainty into credit markets, impacting the timing and financing terms for potential buyers in the specialty business sale process.

Guidance & targets

Category	Target	Timeline	Confidence
Organic parts and services revenue growth	-0.5% to +1.5% high materiality	FY26	High
Adjusted EPS	$2.90 to $3.20 high materiality	FY26	High
Free cash flow	$700 million to $850 million high materiality	FY26	High
Annual cost savings	more than $50 million medium materiality	FY26	High
Europe private label volume penetration	30% low materiality	Coming years	Medium
Europe private label pricing	ratcheting up prices low materiality	Throughout 2026, full effect in 2027	Medium

Segment performance

Segment	Revenue	YoY	QoQ	Margin
North America Organic revenue decline improved from -4.1% last year and -1% in Q4. SG&A improved by 90 basis points as a percentage of revenue. Used car prices climbing (up 6.2% in March) and easing auto insurance premiums are positive indicators for recovery. Alternative parts utilization: nearly 40% (record high)Gross margin: 42.4%	—	declined 0.5% (per day basis)	improved from -1%	EBITDA 14.1% (down 130 bps YoY)
Europe Performance was in line with expectations, with Eastern Europe and Germany delivering positive organic revenue growth. UK and Italy were down year-over-year but showed sequential improvement. ERP migration completed in early April with anticipated temporary sales disruption. Gross margin: 38.3% (down 50 bps YoY)Private label volume penetration: 25.3% (up from 25.1% in Q4)SG&A costs: increased 80 bps to 30.9%	—	pressured organic volumes	sequential improvement	EBITDA 7.8% (down 150 bps YoY)
Specialty Delivered its third consecutive quarter of positive organic growth. Gross margins increased in line with revenue, but higher SG&A, primarily related to $6 million in higher-than-normal credit losses related to a nontrade receivable, offset margin increases. RV revenue growth: nearly double digitsMarine revenue growth: strong	—	up 3.4% (organic)	—	EBITDA decreased $3 million

Product announcements

Product	Type	Timeline	Details
EV Battery Remanufacturing Service	expansion	Q1 FY26
Electronic Components Remanufacturing Service	expansion	Q1 FY26

Deals & partnerships

Bank of America, Goldman Sachs Engaged as advisors for strategic review

Engaged both Bank of America and Goldman Sachs alongside the Board and management to identify and evaluate a full range of alternatives with the objective of maximizing long-term shareholder value.

Undisclosed Acquisition of EV battery remanufacturing business part of $5 million total

Acquired a business in Europe capable of repairing and remanufacturing EV batteries, contributing to the $5 million spent on tuck-in acquisitions.

Undisclosed Acquisition of electronic components remanufacturing business part of $5 million total

Acquired a remanufacturing company specializing in electronic components in Europe, contributing to the $5 million spent on tuck-in acquisitions.

Risks & headwinds

Specialty Business Sale Delay due to Geopolitical Tensions

uncertainty into the credit markets

Mitigation:Haven't shut down the process, but being transparent about timing and dynamics.

European Macro Backdrop and Competitive Pricing Q1 FY26

softness early in the quarter

Mitigation:Focused on controlling service levels, execution, and cost; executing operational initiatives to improve service and optimize cost structure.

Temporary Sales Disruption from European ERP Migration Q2 FY26

temporary sales disruption

Mitigation:Appropriately reflected in full year guidance; project progressing ahead of initial expectations; priority on maintaining customer service and seeing daily improvements in sales levels.

Higher-than-normal credit losses in Specialty segment Q1 FY26

$6 million

Fuel Cost Volatility Q1 FY26 (late quarter) and Q2 FY26

increased petroleum costs and diesel fuel

Mitigation:Confident in passing on costs to consumers; teams are quick to push price through to avoid net impact.

What to watch in Q2 FY26

North America Repairable Claims Recovery

next quarter

Current down 2% to 4%

Target continued improvement

Why it matters

Continued recovery in repairable claims is a key driver for North America segment growth and overall business performance.

Comparable claims were down approximately 2% to 4% and demonstrating steady recovery from the levels we saw throughout 2025.

Find out whether LKQ delivers this. Inve re-checks your case every morning.

Q&A highlights

What are the implications of MSO agreements for alternative parts penetration and margin profile, and how do integrations drive higher, stickier APU?

Management explained that MSOs are higher utilizers of alternative parts, driving volume and efficiency. Renewed MSO agreements and integration of ordering capabilities increase share of wallet and improve efficiency. Automation in MSOs, driven by integration, leads to increased alternative parts volume and improved margin dollars.

“The nice thing is they use way more alternative parts at a rooftop than any other non-MSO. So we gain margin dollars and we gained efficiencies from that.”

asked by Craig Kennison · answered by Justin Jude

2 min read 5 chapters

Detailed narrative

North America Market Recovery Indicators

The company observed promising signs of stabilization in North America, with used car prices climbing (up 6.2% in March alone), non-comprehensive total loss rates declining, and auto insurance premiums easing. These indicators are expected to drive a reduction in total loss frequency and boost the proportion of accidents that translate into repairable claims, supporting continued growth for LKQ.

Management believes these trends reinforce optimism for the business, positioning them for growth and margin expansion as volumes improve.

European Operational Initiatives and ERP Migration

In Europe, LKQ is focused on controlling service levels, execution, and costs amidst a mixed macro backdrop. The company completed a planned ERP migration in a key European market during the first week of April, which is progressing ahead of initial expectations.

This achievement supports integration, process standardization, and cost reduction initiatives, enhancing the ability to become a seamless pan-European distributor, despite anticipated temporary sales disruption.

Strategic Review of Specialty Business

The strategic review for the specialty segment is ongoing, with strong interest from both strategic buyers and financial sponsors. However, recent geopolitical tensions have introduced uncertainty into credit markets, causing some potential buyers to face tightened financing terms. While the process has not been shut down, management is transparent about potential timing delays due to the current environment.

Company-Wide Strategic Review

LKQ is in the early stages of a comprehensive strategic review, engaging Bank of America and Goldman Sachs to evaluate a full range of alternatives. The objective is to maximize long-term shareholder value, with management and the Board aligned on a thoughtful and pragmatic approach.

Investors should not expect immediate updates but can anticipate urgency and thoroughness in evaluating the path forward, without impacting day-to-day operations.

Alitec Business Growth and Market Trend

Alitec, LKQ's calibrations and diagnostic business, delivered strong organic growth and healthy EBITDA margins. The requirement for calibration and diagnostics in collision repairs has significantly increased, rising from approximately 62% three years ago to about 75% today. This trend is viewed as a durable, long-term tailwind and a compelling opportunity to extend LKQ's service offerings.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.