Can you elaborate on Europe's performance, excluding the ERP disruption, and the claim of double-digit EBITDA margin?

Excluding the Germany ERP impact, Europe's EBITDA dollars and percentage increased year-over-year. The team offset volume tightening in Benelux and the UK with over $40 million in productivity initiatives, primarily headcount reductions, demonstrating that underlying operational improvements are taking hold. “I think just to add on to that a little bit is we saw the volume tightening up in Benelux and the U.K., as I talked about, we were more than able to offset that with over $40 million of overall productivity initiatives heavily driven by the head count reduction, taking the model that we had in North America through productivity, driving performance and transplanting that over to Europe.”

What are the plans for rolling out the ERP system across the rest of Europe, and should investors expect further disruptions?

LKQ has 30+ ERP systems in Europe, and the conversion is necessary for efficiency and customer capabilities. The Germany conversion was a major scaling event, moving from a $300 million legacy system to a $2 billion platform. Future conversions, planned for next year, will be easier and less disruptive as they will integrate smaller businesses into the already scaled platform, leveraging lessons learned. “In all future conversions, we don't have any slated for this year, but all future conversions that are going to go into next year. become easier, right? Because now it's not a large scaling event. It's much smaller businesses, much small ERP systems, migrating into a $2 billion platform.”

What exactly happened with the ERP implementation in Germany that caused it to go sideways?

Initial weeks saw stability issues and slowness. After stabilization in late April, uncovering basic conversion issues like bad data and system bugs slowed recovery. Service levels suffered, leading customers to seek alternatives. These issues are resolved, and the focus is now on retraining staff in a couple dozen branches to operate efficiently on the new, robust system. Sales teams are back in the field to regain share of wallet. “But then as you get that revenue flowing through that new system, you start uncovering basic things that normally happen with conversions. Obviously, we had a little bit more than we expected. But things like bad data, maybe the system processes weren't operating as they should have, so call them bugs. A lot of those things have been resolved through May and June.”

LKQ

LKQ (LKQ) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Consumer Discretionary· Jul 30, 2026

Source: earnings call transcript

Executive summary

LKQ Q2 FY26 — Europe ERP Challenges Offset North America's Return to Growth

LKQ's second quarter saw North America return to positive organic growth, driven by improving collision market indicators and record alternative part utilization. However, this was overshadowed by significant ERP implementation challenges in Germany, leading to a substantial decline in European revenue and profitability. Management is focused on stabilizing the European operations and executing recovery plans, while maintaining long-term strategic priorities and a disciplined capital allocation approach.

Highlights

North America parts and services organic revenue increased 0.5%, marking its first quarter of growth in nine quarters.
Alternative part utilization (APU) surpassed 40% in North America, a new record, indicating positive market trends.
Specialty segment delivered resilient organic revenue growth of 4.5%, meeting expectations for the quarter and first half.
Europe achieved over $40 million in year-over-year productivity gains and cost reductions, offsetting volume pressures outside Germany.

Concerns

Europe parts and services organic revenue declined 12.6%, primarily due to ERP implementation challenges in Germany, impacting revenue by an estimated $140 million and EBITDA by $50 million.
Adjusted diluted EPS decreased to $0.67 from $0.84 in the prior year, largely reflecting lower revenue and profitability in Europe.
Full-year adjusted diluted EPS guidance was reduced to $2.60-$2.90 from $2.90-$3.20.
Full-year free cash flow guidance was lowered to $625 million-$775 million from $700 million-$850 million.
Specialty segment's EBITDA margin was 6.7%, impacted by an $8 million non-cash credit loss reserve related to an acquisition.

Guidance & targets

Category	Target	Timeline	Confidence
Organic parts and services revenue growth	negative 1% to negative 3% high materiality	FY26	Medium
Adjusted diluted earnings per share	$2.60 to $2.90 high materiality	FY26	Medium
Free cash flow	$625 million to $775 million high materiality	FY26	Medium
Germany ERP revenue recovery	100% of normal run rate high materiality	by year-end · FY26	Medium

Segment performance

Segment	Revenue	YoY	QoQ	Margin
North America parts and services Achieved positive organic revenue growth for the first time in nine quarters, outperforming the market despite declining repairable claims. EBITDA margin was impacted by a $10 million legal reserve, with underlying performance in the high 14% range. Paint volume remained a headwind. EBITDA margin: 14.1%Aftermarket collision revenue growth: ~2%Canadian hard parts business growth: mid-single digitsRepairable claims decline: 1% to 3%Alternative part utilization (APU): >40%	—	0.5%	—	$207 million
Europe parts and services Organic revenue declined significantly due to ERP implementation challenges in Germany and softer demand in the UK and Benelux. EBITDA declined $42 million YoY. Excluding ERP disruption, the segment was on track for double-digit EBITDA margins due to productivity gains and cost reductions. System performance and operational processes have normalized, with Germany's revenue run rate reaching over 85%. EBITDA margin: 7.5%Estimated ERP revenue impact: ~$140 millionEstimated ERP EBITDA impact: ~$50 millionEstimated volume pressure EBITDA impact (UK/Benelux): ~$30 millionProductivity gains and cost reductions: >$40 million (YoY improvement)Private label volume penetration: 26.6%	—	-12.6%	—	$109 million
Specialty Delivered resilient top-line performance with organic revenue growth in line with expectations. EBITDA margin was affected by an $8 million non-cash credit loss reserve related to an acquisition, which is now resolved. Gross margin and mix remain areas for improvement, with freight and fuel costs acting as headwinds. EBITDA margin: 6.7%	—	4.5%	—	$33 million

Risks & headwinds

ERP implementation challenges in Germany Q2 FY26, with recovery expected through H2 FY26

Organic revenue declined 12.6%; estimated revenue impact ~$140 million; estimated EBITDA impact ~$50 million

Mitigation:Addressed issues with urgency, improved system performance, normalized operational processes, focused on retraining staff, sales teams re-engaged with customers. Goal to restore service levels and recapture revenue.

Softer demand and competitive pressure in UK and Benelux Q2 FY26, assumed to remain soft in H2 FY26

Estimated EBITDA impact ~$30 million

Mitigation:Implemented over $40 million in productivity gains and cost reductions, including headcount reductions and closure of underperforming locations. Changed leadership and sharpened recovery plans for commercial execution and customer retention.

Paint volume as a headwind Q2 FY26

Negative impact on North America's overall growth rate

Mitigation:Not explicitly stated, but broader North American execution improvements and focus on alternative parts usage are expected to offset.

Freight and fuel costs Q2 FY26

Headwinds for Specialty segment

Mitigation:Not explicitly stated, but management aims to improve gross margin and operating efficiency in Specialty.

Used car pricing improvement Q2 FY26

Positive trend for collision markets

Mitigation:Not a risk, but a positive indicator for the business.

Insurance CPI negative year-over-year May and June (YoY)

Puts pressure on carrier margins, creating need to reduce repair costs

Mitigation:Drives increased utilization of alternative parts, which is a positive for LKQ's business.

What to watch in Q3 FY26

Germany ERP revenue run rate recovery

Q3 FY26

Current 85% of normal run rate

Target Continued improvement towards 100%

Why it matters

The pace of recovery in Germany is critical to overall European segment performance and achieving full-year guidance.

We finished last week above 85% of our normal revenue run rate in Germany. This is a meaningful milestone that demonstrates the progress our teams have made.

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

Q&A highlights

What was the repairable claims trend in Q2 for North America, and how is the MSO strategy progressing given the depressed market?

Repairable claims were down 1-3% in Q2, an improvement from Q1, with positive macro trends like improving used car prices and negative insurance CPI. MSOs are gaining share in the depressed market, which is beneficial for LKQ's margins due to higher alternative part usage and lower SG&A per transaction.

“While the market has not fully recovered, several external indicators continue to reinforce our belief that collision markets are improving. Not only has used car pricing continue to improve, both May and June showed negative insurance CPI on a year-over-year basis, putting pressure on carrier margins, creating a need to reduce repair costs.”

asked by Jeffrey Lick · answered by Justin Jude

2 min read 5 chapters

Detailed narrative

North America Performance and Market Trends

The North American segment achieved positive organic growth of 0.5% for the first time in nine quarters, outperforming a 1% to 3% decline in repairable claims. This growth was supported by a 2% increase in aftermarket collision revenue and mid-single-digit growth in the Canadian hard parts business.

Key external indicators, such as improving used car pricing and negative insurance CPI in May and June, suggest a recovering collision market. Alternative part utilization (APU) reached a record over 40%, indicating a positive trend for the business.

Europe ERP Implementation Challenges and Recovery

Europe's organic revenue declined 12.6%, primarily due to ERP implementation issues in Germany, which impacted revenue by an estimated $140 million and EBITDA by $50 million. The ERP conversion, while disruptive, is a critical step to modernize operations, consolidating 30+ legacy systems onto a common platform.

System stability has improved, and the revenue run rate in Germany reached over 85% by the end of Q2. Management expects a full recovery to 100% of normal revenue run rate by year-end FY26, with lessons learned from this scaling event to benefit future, smaller conversions.

European Regional Performance and Cost Management

Outside Germany, the UK and Benelux regions underperformed on revenue due to softer demand and heightened competition in the UK. Despite these headwinds, the European business delivered over $40 million in year-over-year productivity gains and cost reductions through restructuring, efficiency initiatives, and the closure of underperforming locations.

Leadership changes were made to address commercial execution and cost control, demonstrating management's commitment to improving underlying earnings power, with the segment on track for double-digit EBITDA margins excluding the ERP disruption.

Specialty Segment Resilience and Margin Focus

The Specialty segment continued its resilient performance with organic revenue increasing 4.5%, meeting expectations. However, its EBITDA margin was 6.7%, impacted by an $8 million non-cash credit loss reserve related to an acquisition. Management is focused on improving gross margin, enhancing operating efficiency, and better leveraging the existing cost structure to translate resilient revenue into stronger and more consistent earnings performance.

The credit loss issue is now resolved following the acquisition of the vendor.

Capital Allocation and Strategic Review Update

LKQ ended the quarter with $1.9 billion in total liquidity and a net leverage of 2.8x EBITDA. The company returned $129 million to shareholders through share repurchases and dividends. In July, LKQ prepaid a $500 million U.S. term loan due in Q1 2027 using its revolving credit facility, with plans to reduce the revolver balance with free cash flow.

The previously announced strategic review process remains active, with the company and its advisors engaging with multiple parties, including for the Specialty business, which is now part of the broader review.

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