On its July 25 quarterly report conference call, the management of LKQ Corp. announced a restructuring program designed to enhance the company’s competitiveness in the current macroeconomic environment. “The restructuring program covers all three of our reportable segments [North America, Europe and Specialty] and advances our efforts to eliminate underperforming assets and cost inefficiencies,” Executive Vice President and CFO Varun Laroyia told analysts on the call.
LKQ intends to close branches and warehouses that are not supporting a sufficient return on investment. “Our current plan includes approximately 40 locations across the business, both in North America and Europe,” Laroyia said. “We intend to migrate as much of the revenue as possible from these locations to other facilities in the LKQ network, but there will likely be some low-margin revenue loss as a result of the closures.”
Laroyia also noted that there will be select personnel reductions.
“We estimate that the restructuring program will cost approximately $25 million to $30 million over the next year to implement and will generate savings of a similar amount on a run rate basis,” he stated. “While this program represents a significant move forward in our plans to improve our competitiveness, we will continue to evaluate our businesses and cost structure to identify further opportunities for simplification and cost efficiency.”
In a related move, LKQ has engaged with a third-party consulting firm to assist with management’s review of the company’s various businesses in Europe. “Once complete, we will likely settle on an even broader and deeper array of initiatives than those highlighted a year ago,” President and CEO Nick Zarcone said on the call. “To be clear, the primary focus of this optimization project is to create an even stronger enterprise and to enhance our already leading competitive position in the markets in which we operate by providing a best-in-class customer experience. To do that across our European platform, we intend to transform and more fully integrate our European businesses to operate more as a single entity.
“The transformation will be designed to allow LKQ Europe to take advantage of its scale and be a more efficient entity. We anticipate most of this analysis will be completed in the next two months, and we are currently targeting a call with the investment community in the second week of September so we can share some of the key highlights of the project, including the anticipated long-term benefits of the optimization initiatives as well as the related cost required to complete the transition.” — Marc Vincent