Industry: business services
LKQ distributes vehicle products, including replacement parts, components and systems used in the repair and maintenance of vehicles. The main markets for the company are the U.S., Canada, the U.K, and the Benelux region in Europe.
|Most recent||Growth rate (CAGR)|
|1 year||5 years||10 years|
|Book value of equity per share||$13.08||17.3%||15.5%||15.6%|
|BV including aggregate dividends||17.3%||15.5%||15.6%|
|1 year||5 years||10 years|
|Most recent||Growth rate (CAGR)|
|1 year||5 years||10 years|
|1 year||5 years||10 years|
A company creates wealth for its long-term shareholders in 2 main ways - through dividend payments and through the accumulation of retained earnings. This graph shows the accumulation of per-share equity of long-term shareholders (green bars), which consists of the retained earnings plus all capital invested in the company, and the cumulative dividends the company has paid over time per share of its stock (blue bars).
In the words of Warren Buffett: "We're looking for... businesses earning good returns on equity while employing little or no debt."
Return on equity is a key metric of financial performance, indicating a company's ability to generate earnings using shareholder capital. Over time, ROE is one of the major determinants of the rate at which a company creates shareholder wealth. The average ROE for large U.S. companies is 12%, and many investors use it as a threshold for attractive investments.
Companies can boost ROE by increasing leverage, which reduces the safety of the investment. Therefore, it is useful to look at the return on assets (ROA), which measures a company's earning power regardless of its capital structure. A widening gap between ROE and ROA may be a warning sign that should be thoroughly investigated.
Earnings per share is a popular metric used to value a company (using P/E ratio); growth in EPS is often used to judge company growth potential. However, many investors believe that EPS is an inferior metric to ROE, because it ignores the amount of capital the company used to generate earnings.
Free cash flow shows how much cash a company generates from operations, above and beyond what is required to maintain or expand its productive assets. This cash can be returned to investors, or spent by management on growing the company or paying back its debts.
Balance sheets of many companies contain intangible assets such as goodwill, trademarks, patents, etc. Many investors consider intangibles more difficult to value than physical assets. If intangible assets had been valued incorrectly, they must be impaired, resulting in a loss charged against shareholder equity. This chart demonstrates the potential loss to shareholder equity from such impairments.
Companies often use debt financing to increase their return on equity. However, as the amount of debt financing increases relative to the amount of equity financing, the company becomes more sensitive to down turns and other negative events. As a result, many investors use the ratio of debt to equity as a measure of a company's financial risk, and avoid companies that have this ratio above 1.
This chart shows shareholder equity as a percentage of total assets, allowing investors to judge the overall leverage. Companies with a higher proportion of equity can be viewed as safer investments. This metric is particularly important for highly leveraged institutions, such as banks, where it must be at least 4% according to government regulations.
The ratio of current assets to current liabilities is known as the current ratio. This metric is a quick measure of the company's ability to pay its short-term obligations. A current ratio below 1 is a warning sign that should be investigated, especially for companies that cannot count on adequate cash flow from operations.
This chart shows the cumulative dilution of investor ownership in a company over time. Dilution reduces an investor's participation in the future earnings. Dilution increases when a company issues new shares, and decreases when a company buys its shares back. Many investors avoid companies with large chronic dilution.
analysis provides insight into factors affecting the Return On Equity of a company.
The DuPont equation decomposes ROE as follows:
ROE = (Net margin) * (Asset turnover) * (Asset to equity ratio)
Net margin indicates operating efficiency, Asset turnover measures the total asset use efficiency, and the Asset to equity ratio is a measure of financial leverage.
The dividend payout ratio tells investors what percentage of earnings a company returns to shareholders, and what percentage it retains and reinvests. This ratio represents a major capital allocation decision by the company, and can be used to judge management rationality. Rational management should pay out all earnings that cannot be productively reinvested. Therefore, a low dividend payout ratio for a profitable company with a low growth potential may be a warning sign.
Many investors use the P/B ratio as a quick way of judging company valuation. Value investors - followers of Graham and Dodd - specifically seek out companies with low P/B ratios. However, investors should be careful not to make investment decisions on this metric alone, without considering a company's earning and growth potential, since a low P/B ratio can be a sign of a bleak future for the business.
P/E ratio is a popular way of making a quick judgment of a company valuation. Value investors - followers of Graham and Dodd - often seek solid companies with low P/E ratios as investment opportunities. However, P/E ratio represents an oversimplified approach to business valuation, and can often lead to incorrect investment decisions.
In connection with the initial public offering of our common stock, the Securities and Exchange Commission declared our first registration statement, which we filed on Form S-1 (Registration No. 333-107417) under the Securities Act of 1933, effective on October 2, 2003. Managing underwriters for the offering were Robert W. Baird & Co. and Jefferies & Company, Inc. Under this registration statement, we issued and sold 5,000,000 shares of our common stock and certain of our stockholders named in the registration statement sold another 3,050,000 shares of our common stock (including the 1,050,000 shares of common stock covered by the over-allotment option). All 8,050,000 shares of common stock registered under the registration statement were sold at a price to the public of $13.00 per share. The aggregate gross proceeds from the sale of the shares of common stock sold by us pursuant to the registration statement were $65,000,000. On October 8, 2003, the transaction was closed and we received aggregate net proceeds from the offering of approximately $58,269,000 after deducting an aggregate of $4,550,000 in underwriting discounts and commissions paid to the underwriters and $2,180,000 in other expenses incurred in connection with the offering.
We completed the sale of 6.4 million shares of our common stock at a price of $14.50 per share in a public offering in October 2005, as adjusted for our January 2006 two-for-one stock split. This resulted in approximately $87.9 million of cash proceeds to us, net of underwriting discounts and commissions and expenses of the offering. In connection with the offering, certain members of management exercised stock options to purchase 600,000 shares of our common stock, resulting in approximately $2.1 million of proceeds to us. We used all of the proceeds from the offering and the option exercises to pay down our then outstanding bank debt and invested the remaining proceeds in short term cash equivalents until we used them for general corporate purposes, which included three acquisitions completed by the end of the year.
On September 25, 2007, the Company completed the sale of 11,800,000 shares of its common stock pursuant to a registration statement filed with the Securities and Exchange Commission. Pursuant to the same registration statement, the selling stockholders named in the registration statement sold 2,000,000 shares of the Companys common stock. The Company received $349.5 million, net of underwriting discount and offering related expenses for the common stock it issued and sold. The Company did not receive any proceeds from the sale of shares by the selling stockholders. The Company also received approximately $2.8 million in proceeds from the exercise of 500,000 stock options by two of the selling stockholders in connection with the offering.
On October 12, 2007, we completed our acquisition of 100% of the outstanding stock of Keystone, the nation's leading distributor of aftermarket collision parts. Under the terms of the Agreement and Plan of Merger among the Company, Keystone and LKQ Acquisition Company, a wholly-owned subsidiary of the Company ("Merger Sub"), Merger Sub was merged with and into Keystone with Keystone being the surviving corporation and becoming a wholly-owned subsidiary of the Company. Under the Merger Agreement, holders of shares of Keystone common stock received $48.00 in cash in exchange for each such share, representing an aggregate cash consideration, including transaction costs, net of deferred taxes, and assumed cash of approximately $807 million on a fully diluted basis.
On October 3, 2011, LKQ Corporation, LKQ Euro Limited, a subsidiary of LKQ Corporation, and Draco Limited entered into an Agreement for the Sale and Purchase of Shares of Euro Car Parts Holdings Limited. Under the terms of the Sale and Purchase Agreement, effective October 1, 2011, LKQ Euro acquired all of the shares in the capital of ECP, an automotive aftermarket products distributor in the U.K., from Draco and the other shareholders of ECP. With the acquisition of ECP, we have expanded our geographic presence beyond North America into the European market. Our acquisition of ECP established our Wholesale Europe operating segment. Total acquisition date fair value of the consideration for the ECP acquisition was GBP 261.6 million ($403.7 million), composed of GBP 190.3 million ($293.7 million) of cash (net of cash acquired), GBP 18.4 million ($28.3 million) of notes payable, GBP 2.7 million ($4.1 million) of other purchase price obligations (non-interest bearing) and a contingent payment to the former owners of ECP. Under the contingent consideration agreement, if certain annual EBITDA targets are met, we may pay between GBP 22 million and GBP 25 million and between GBP 23 million and GBP 30 million for the years ending December 31, 2012 and 2013, respectively. We have assessed the acquisition date fair value of these contingent payments to be GBP 50.2 million ($77.5 million at the exchange rate on October 3, 2011). For all subsequent reporting periods until the contingency is resolved, we will reassess the fair value of this contingent payment and any changes in fair value will be recognized in our Consolidated Statements of Income. There was not a material change in the assessed fair value of the contingent payment between October 3, 2011 and December 31, 2011. We recorded goodwill of $337.0 million for the ECP acquisition, which will not be deductible for income tax purposes. In the period between October 1, 2011 and December 31, 2011, ECP generated approximately $138.5 million of revenue and $10.1 million of operating income.
On March 18, 2016, LKQ and its wholly-owned subsidiary LKQ Italia S.r.l. acquired Rhiag-Inter Auto Parts Italia S.p.A., a distributor of aftermarket spare parts for passenger cars and commercial vehicles in Italy, Czech Republic, Slovakia, Switzerland, Hungary, Romania, Ukraine, Bulgaria, Poland and Spain. This acquisition expands LKQ's geographic presence in continental Europe, and we believe the acquisition will create potential purchasing synergies. Total acquisition date fair value of the consideration for our Rhiag acquisition was 534.2 million ($602.0 million), composed of 533.6 million ($601.4 million) of cash (net of cash acquired) and 0.6 million ($0.6 million) of intercompany balances considered to be effectively settled as part of the transaction. In addition, we assumed 488.8 million ($550.8 million) of existing Rhiag debt as of the acquisition date. We recorded $739.7 million of goodwill related to our acquisition of Rhiag, which we do not expect to be deductible for income tax purposes.