Q1 2025 LKQ Corp Earnings Call
Your call today.
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Speaker Change: I'll now hand over to your host J P interests, Vice President of Investor Relations at LKQ to begin. Please go ahead.
Speaker Change: Thank you operator, and good morning, everyone and welcome to Lkq's first quarter 2025 earnings conference call with US today are Justin Jude Lkq's, President and Chief Executive Officer, and Rick Galloway, Our senior Vice President and Chief Financial Officer. Please refer to the LKQ website at LKQ Corp, Dot com for our earnings release issued this.
Speaker Change: Morning, as well as the accompanying slide presentation for this call now let me quickly cover the safe Harbor some of the statements that we make today may be considered forward looking.
Speaker Change: These include statements regarding our expectations beliefs hopes intentions or strategies.
Speaker Change: Actual events or results may differ materially from those expressed or implied in the forward looking statements. As a result of various factors, we assume no obligation to update any forward looking statements.
Speaker Change: For more information please refer to the risk factors discussed in our Form 10-K, and subsequent reports filed with the SEC. During this call. We will present, both GAAP and non-GAAP financial measures a reconciliation of GAAP to non-GAAP measures is included in today's earnings press release and slide presentation.
Speaker Change: Hopefully everyone has had a chance to look at our 8-K, which we filed with the SEC earlier today and as normal we are planning to file our 10-Q in the coming days.
Justin Jude: With that I am happy to turn the call over to CEO Justin Jude.
Justin Jude: Thank you Joe and good morning to everyone joining us on the call.
Speaker Change: Since the tariffs were announced on April 2nd much has changed capturing the interest of all of US on this call and affecting the global economy.
Speaker Change: Before discussing tariffs I would like to address several topics concerning our people our operations and our performance.
Speaker Change: What sets us apart from our competition is our dedicated workforce, which we consider to be our most valuable asset.
Speaker Change: To ensure their safety, we implemented an end cap monitoring equipment in our fleet last year.
Speaker Change: Moving 95% coverage in North America by the end of Q1.
Speaker Change: This initiative has led to a nearly 40% reduction and on the road accidents and we aim to implement these features in Europe, where feasible.
Speaker Change: We value talent development and have launched our global talent development function to unify our workforce through leadership competencies and career planning.
Speaker Change: In February a cohort of high potential global leaders, the Canada, new sessions to promote learning and idea sharing.
Speaker Change: This initiative will also help facilitate best practice sharing between our North America and European operations.
Speaker Change: During the quarter. We also held both our north American and European leadership conferences, bringing together more than 3500 of our top global leaders to align on our strategy and goals.
Speaker Change: As anticipated part of the discussion revolved around navigating recent tariff developments and challenging macroeconomic conditions.
Spite these challenges our team managed to meet our expectations achieving earnings per share at <unk> 79 for the quarter.
Speaker Change: Although the markets present, uncertainties, we must continue executing our simplification strategy without delay I will highlight some of our operational accomplishments during the segment breakout and Rick will provide more detail later in the call.
Speaker Change: Regarding our ongoing strategy to simplify the portfolio, we divested two operations a self serve yard in Florida, and a Europe based non core leisure business, demonstrating our commitment to streamlining our portfolio.
Speaker Change: We remain committed to a balanced capital allocation strategy, incorporating dividends share repurchases and maintaining our investment grade rating.
Speaker Change: During the quarter, we repurchased 1 million shares for about $40 million and paid $78 million in dividends in March.
Speaker Change: Now moving to our segments.
Speaker Change: North America's organic revenue fell by four 1% per day, which is less of a decline in the last three quarters of 2024, Ahmet, a nearly 10% decline in repairable claims the.
Speaker Change: The drag on our riverboat claims, resulting from declining used car pricing and rising insurance premiums really started worsening in Q2 of 2024. So the comps will start to ease as we progress through the year.
Speaker Change: Since 2015, we have outperformed the repairable claims count growth by over 400 bps per year in Q1 was 570 bps better indicating market share gains against a low demand environment.
Speaker Change: North America also benefited from having a diversified portfolio of products and services mitigating potential shortfalls in other business areas, we generated positive growth for our <unk> calibration and diagnostics business and our bumper to bumper hard parts business in Canada.
Speaker Change: In Europe organic revenue declined by one 8% per day compared to a growth of four 4% in Q1 of 2024 on a two year stack organic revenue growth was two 6%.
Speaker Change: There was noticeable softness in many markets impacted by consumer confidence Europe also experienced a relatively mild winter year over year impacting certain products, such as batteries, which are higher in demand during periods of inclement weather.
Speaker Change: Competitive pricing in some countries also contributed to challenging conditions that we believe will stabilize long term.
Speaker Change: Our comprehensive product and service offerings, our best in class across Europe, and we consciously avoid making brass short term pricing decisions that dilute the value proposition we offer in Europe best practices support our daily success at LKQ.
Speaker Change: Our SKU rationalization project in Europe aims to reduce complexity and simplify our distribution network across all markets. We have reviewed over 60% of our product brands and reduced stocking by an additional 17000 skus.
Speaker Change: Additionally, our private label penetration increased by 20 basis points.
Speaker Change: As Andy and I mentioned at the Investor Day, the integration of Europe is mission critical and accelerating that effort is imperative given it has not progressed at the cadence we promised in the past.
Speaker Change: In order to drive change management, we need the right leaders in place to truly achieve the benefits of the scale of one LKQ Europe represents.
Speaker Change: Since taking the helm in Europe, Andy alongside Rick and I have replaced a fair number of the previous leadership team and have onboard individuals that are aligned with the operational excellence and lean management initiatives necessary to optimize our European operations are focuses on people process and performance.
Speaker Change: Regarding specialty our organic revenue declined by four 9% on a per day basis, which is a sequential improvement compared to Q4 of 2024.
Speaker Change: At the start of 2025, there was optimism about specialty stabilizing later in the year, but consumer sentiment decreased significantly due to anticipated tariff pricing pressures.
Speaker Change: Sentiment along with inflationary pressures will likely continue throughout the year.
Speaker Change: Now turning to tariffs.
Speaker Change: While the current headlines of the tariffs are broadly known to final decisions remain unclear. There are many dynamics of this tariff situation than those in the past.
Speaker Change: We have established an internal global tariff task force, which includes leaders from procurement operations finance risk management sales and marketing to help navigate and make decisions.
Speaker Change: If everyone remembers to supply chain constraints, following COVID-19, where inflation was driving our product cost and a supply demand imbalance created huge increases in ocean freight but team prove their agility of mitigating the impact and we came out financially stronger.
Speaker Change: Specific to our tariff exposure of less than 15% of our U S businesses cost of goods are directly imported from outside the U S. With the majority of that product coming out of Taiwan.
Speaker Change: I will kick us advantage over our aftermarket collision parts competitors lies in our supply of recycled products, which we anticipate we will see an increase in demand given their competitive pricing relative to new OE parts.
Speaker Change: We expect the tariffs will raise part prices and increased used car values. Historically these increases have benefited the industry as used car values are expected to rise faster than the vehicle repair costs potentially leading to more cars being repaired and kept on the road longer.
Speaker Change: Our tariff task force is working on mitigating tariff impacts through potential cost concessions from vendor partnerships and identifying supply chain optimization and SG&A reductions.
Speaker Change: The non discretionary nature of the North American business and the industry allows for needs based pricing power, enabling LKQ to pass on select price increases thus insulating the wholesale dynamic from the other parts suppliers in the market.
Speaker Change: Now before I turn the call to Rick to discuss our Q1 results I am pleased to announce that we will be publishing our 2020 for sustainability report at the end of May.
Speaker Change: Sustainability continues to be at the heart of what we do especially in our North American and Europe salvage operations.
Speaker Change: This is true today as it was when we started over 26 years ago.
Speaker Change: Rick.
Rick Galloway: Thank you Justin and welcome to everyone. Joining us today, we are pleased with our start to 2025.
Rick Galloway: Cost actions taken in 2024, including exiting underperforming businesses and driving our lean operating model have positioned us well to offset the topline headwinds across each of our segments.
Rick Galloway: Overall Q1 results were largely consistent with the trends we saw throughout the last several quarters.
Rick Galloway: Europe continued its solid performance with a 60 basis point year over year improvement in segment EBITDA.
Rick Galloway: In North America, we were pleased with their performance given the anticipated top line pressure as we work through the decline in repairable claims.
Rick Galloway: Self service delivered another quarter of year over year improvement in both EBIT dollars and percentage.
Rick Galloway: Specialty results remained under pressure with soft demand in the RV and sema space, partially driven by softening consumer sentiment in light of the ongoing macroeconomic instability, including uncertainty around the effect of tariffs.
Rick Galloway: Now turning to the first quarter consolidated results.
Rick Galloway: Our first quarter performance was in line with our expectations.
Rick Galloway: We reported diluted earnings per share of <unk> 65.
Rick Galloway: <unk> increased compared to Q1 2024.
Rick Galloway: On an adjusted diluted earnings per share basis, we reported 79.
Rick Galloway: A decrease of <unk> <unk> per share versus prior year.
Rick Galloway: The decrease in adjusted EPS is largely due to lower segment EBIT dollars predominantly from our wholesale North America segment.
Rick Galloway: Higher legal and professional fees were also a <unk> <unk> headwind as we reached the cooperation agreement with Ancora and engine capital in the first quarter.
Rick Galloway: The impacts from interest and FX rates, largely offset each other with interest being a slight positive and FX being a slight negative.
Rick Galloway: On a positive note lower share count, resulting from our disciplined share repurchase program drove <unk> <unk> of incremental adjusted EPS versus prior year.
Rick Galloway: Now for segment results going to slide eight.
Rick Galloway: North America posted a segment EBITDA margin of 15, 7%, a 60 basis point decrease relative to last year, primarily due to the organic revenue decline.
Rick Galloway: The decline in organic revenue was driven by a reduction in repairable claims and having one less selling day.
Rick Galloway: Partially offset by targeted actions to increase market penetration.
Rick Galloway: Gross margin improved by 20 bps as a result of product mix and pricing initiatives.
Rick Galloway: Overhead expenses declined by $16 million relative to prior year, including $24 million of decreased personnel costs due to unit select synergies and productivity initiatives.
Rick Galloway: These were partially offset by inflationary cost pressures related to facilities and vehicle expenses as well as higher legal and professional fees.
Rick Galloway: The leverage effect of the organic revenue decline largely drove the increase in opex as a percentage of revenue.
Rick Galloway: We expect headwinds on repairable claims to continue in 2025, but abate somewhat toward the back half of the year.
Rick Galloway: Excluding any potential impacts from tariffs over the balance of the year, we still believe north America's EBITDA margins will be in the low <unk> on a full year basis.
Rick Galloway: Looking at Slide nine Europe reported a segment EBITDA margin of nine 3%, a 60 basis point improvement over last year.
Rick Galloway: The year over year improvement was driven by higher gross margins the ongoing efforts to simplify the operations and portfolio as well as productivity efforts to offset inflationary pressures on overhead costs.
Rick Galloway: Overhead costs were also negatively affected in the prior year due to union related negotiations.
Rick Galloway: Given the actions, we've taken to drive productivity and simplify the portfolio and absent any macroeconomic impact from the tariff situation. We continue to project EBITDA margin will be double digits on a full year basis in 2025.
Rick Galloway: Moving to slide 10 spur.
Rick Galloway: Specialties EBITDA margin of five 4% is 100 basis points below the prior year, primarily driven by a decline in organic revenue and resulting leverage effect on overhead costs.
Rick Galloway: Demand softness in the light vehicle in RV product lines remain challenges for the business economic.
Rick Galloway: Economic instability stemming from tariffs has resulted in declines in consumer sentiment, which negatively impacts discretionary spending and some of the markets in which specialty operates.
Rick Galloway: Given the ongoing uncertainty and demand softness we expect segment EBITDA margin to be around the low end of the 7% to 8% range. We provided when we issued full year 2025 guidance.
Rick Galloway: Self service generated $20 million and segment EBITDA in Q1, an increase of $4 million and 290 bps improvement as a percentage of revenue.
Rick Galloway: Disciplined vehicle procurement combined with overhead cost controls helped to drive the fourth consecutive quarterly improvement in year over year profitability.
Rick Galloway: Shifting to cash flows and the balance sheet.
Rick Galloway: Free cash flow during the quarter was a net outflow of $57 million. This performance was in line with our expectations due to the timing of our payables partially related to the investment in inventory in North America in anticipation of possible Q1 port strikes and higher interest payments for the 2031 Euro senior notes due to timing.
We anticipate generating positive free cash flow in the next three quarters will bring us in line with our full year guidance absent any significant tariff driven market turbulence.
Rick Galloway: Moving to slide 11, we remained active in the market allocating $40 million in share repurchases for 1 million shares.
Rick Galloway: We also paid our quarterly dividend totaling $78 million.
Rick Galloway: As a continuation of our disciplined capital allocation strategy, we did not make any acquisitions in the first quarter.
Rick Galloway: We borrowed approximately $170 million in the quarter as of March 31, we had total debt of $4 4 billion with a total leverage ratio of two five times EBITDA.
Rick Galloway: The leverage ratio is slightly higher than the prior quarter, we anticipated the increase as we built trade working capital in Q1, largely associated to the seasonal nature of our business and the increase in inventory purchases in Q4, and Q1 to get ahead of potential disruptions at the ports and from tariffs.
Rick Galloway: We remain committed to maintaining a manageable debt level and our investment grade rating as of March 31, 2025, our current maturities were $558 million.
Rick Galloway: Including the $500 million term loan coming due in Q1 2026.
Rick Galloway: As normal practice, we actively manage our capital structure and we are working through our options with our lending group.
Rick Galloway: We have no significant concerns regarding our ability to extend the maturity date.
Rick Galloway: Our effective interest rate was five 2% at the end of Q1 slightly down from Q4.
Rick Galloway: We have $1 $8 billion in variable rate debt of which $700 million has been fixed with interest rate swaps, which effectively provide fixed rate on approximately 75% of our debt.
Rick Galloway: I will conclude with our thoughts on 2025 guidance as shown on slide 12.
Rick Galloway: Although there are always uncertainties. We believe we can deliver on our guidance provided back in February excluding any material impacts from tariffs.
Rick Galloway: The discussions around tariffs may affect our markets directly and indirectly.
Rick Galloway: Companies have taken a variety of methods and addressing the remainder of the year.
Rick Galloway: We will wait to fully analyze the pending changes and update you during our Q2 call. When we believe the tariff situation becomes clear.
Rick Galloway: That being said our guidance is based on current market conditions and recent trends, excluding the potential impacts of tariffs and assumed scrap and precious metal prices hold near first quarter prices on.
Rick Galloway: On foreign exchange, our guidance is near March average rates, including the euro at $1 <unk>.
Rick Galloway: Pound Sterling at $1 28.
And the Canadian dollar at 70.
Rick Galloway: The global tax rate is at 27.0%, which is consistent with our original guidance and prior year.
Rick Galloway: In our original guidance, we expected organic parts and services revenue growth between zero and 2% given our Q1 results were likely headed toward the lower end of that range.
Rick Galloway: Excluding potential tariff impacts our adjusted diluted EPS remains in the range of $3 40 to $3 70.
Rick Galloway: And our free cash flow remains in the range of $750 million to $900 million.
Rick Galloway: We will balance our trade working capital and capital expenditure needs to fund our strategic growth objectives for 2025 and beyond.
Justin Jude: Thanks for your time I will now turn the call back to Justin for his closing comments.
Justin Jude: Thanks, Rick for the financial commentary.
Justin Jude: Before we open up for questions I would like to remind everyone. We remain committed to our long term key strategic priorities and our team is agile to navigate short term challenges first we need to grow above the market.
Justin Jude: Next simplify simplify our operations by ensuring lean thinking is in everything we do.
Justin Jude: And simplify our portfolio across our markets businesses and product lines.
Justin Jude: Improved free cash flow by growing profitably and strengthening our balance sheet <unk>.
Justin Jude: Invest in growth organically and via small highly synergistic tuck ins for the continuation on the moratorium of any large acquisitions.
Justin Jude: Focus on our capital allocation strategy around returning capital to our shareholders through a combination of share repurchases and dividends in.
Speaker Change: In Q1, we met most of our strategic goals with our 46000 employees are definitely managing volatile markets.
Speaker Change: Whether it's tariffs or some other challenge no matter, what our company may face I'm truly proud of how consistent our team emerged stronger and better prepared for the future.
Speaker Change: Operator, I'll now turn the call over for questions.
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Speaker Change: We ask participants to limit their questions to Onemain and one follow up and get back into the queue. If you have another question.
Speaker Change: Our first question is from Scott <unk> of Roth and K Ann Your line is now open. Please go ahead.
Scott: Good morning, and thanks for taking my questions.
Speaker Change: Hey, good morning, Scott.
Speaker Change: Regarding North America, it sounds as if the comparisons get a lot easier in the second quarter.
Speaker Change: Just on a repairable claim basis, but can you just talk about what what trends.
Speaker Change: <unk> basis, Youre seeing from the insurance companies.
Speaker Change: Regarding used car pricing.
Speaker Change: Any change in their behavior.
Speaker Change: Regarding.
Speaker Change: Whether or not they will junk of car or repair.
Speaker Change: Yes.
Scott: Good question Scott.
Scott: Throughout the 2024, there's been a lot of shift in market share with insurance carriers, we talked about a lot about the high rising insurance costs premiums people raising their deductibles I think with a lot of the shift of competition. We will not expect I don't expect to see rising insurance prices anymore for the timing for the at least for the next year or so.
Scott: I think there could be more competitive.
Scott: From the used car standpoint, we added almost two year I think decline of used car values. We saw in April that number actually ticked up.
Scott: Obviously, it's only one month, but it's nice to see that used cars.
Scott: Used car pricing has plateaued and started to improve.
Scott: Those dynamics are flattening insurance premiums rising used car prices.
Scott: We're going to talk about there is probably some of you asked that question, but terrorists typically will drive a car pricing and that'll be that'll be good for the industry. We actually had also one state that improve that increase in repairable.
Scott: Total loss value. So it used to be 70% and I think there is a small small stakeholder, Rhode island, but it was 70% and raised at the 85% to help improve keeping cars on the road and getting it repaired and we're seeing some of that noise start to happen in a good way in other states, where they will increase the threshold of when a car totals out so overall.
Scott: We really got one good month of used car pricing, but we're starting to see some trends that hopefully will improve the repairable claims.
Gotcha and then the last question of course on tax it seems like your biggest exposure.
Scott: In North America is Taiwan. It seems like there is I think.
Scott: A blanket.
Scott: <unk>.
Scott: Countries with 10% I think Taiwan is in there as well.
Scott: How would that have an impact on your business do you think you can put price increases through to cover that or is it just too soon to say right now.
Speaker Change: Yes, I'll probably answer that question in a few more on my guess is tariffs on a lot of People's mind on the call. So Rick now going to spend a few minutes talking about that first I'll tell you historically when the industry has seen tariffs they've been good for the industry and they've been good for Okay, Q1 caveat to kick of LKQ, we have a global footprint.
Speaker Change: Nearly 50% of our business in Europe is currently not subject to tariffs.
Speaker Change: But theres a lot of volatility right now with the tariffs the new seems like it's changing every day as I mentioned on my on the call. We put a task force together to really dig into this.
Speaker Change: We'll talk about we'll talk about Taiwan.
Speaker Change: But we really had one of the task force to react pretty quickly just because it seems to be changing every day.
Speaker Change: What we've identified obviously is based on what we know theres more tariffs and just Taiwan Theres other countries that we import product from.
Speaker Change: And if you if you look at the our product costs, we really broke those into two different buckets. The first bucket I would say is what's direct meaning we import from China, we import from Mexico, we import from Taiwan.
Speaker Change: Standing with the tariff impact on where we stand today with what we know one tariffs that's a little bit easier to identify and quantify when you. When we talk about the indirect piece that gets a little bit more complex. So you think about one of our businesses in the U S.
Speaker Change: Buying a product from a U S distributor that product could have been 100% imported from China, or Taiwan that product could have components take a jeep lift kit that our specialty division sales.
Speaker Change: Supplier that we buy from could could get the fasteners and nuts and bolts from China. They could get the brackets for Mexico. So understanding the impact of our indirect is a little bit more complex, we're working with all of our suppliers on that but we do have some quantification of those buckets. Rick if you want to talk about blog sure. Yeah. Let me, let me try to address a couple of things that I'm sure are on People's minds.
Speaker Change: As well and quantify these things so.
Speaker Change: Look certain new tariffs took effect within the quarter the financial impact was immaterial for us within the quarter.
Speaker Change: Also it's important to note that we've been living with the previous Trump tariffs and we've been able to pass those along so Scott to your point are we able to pass them along historically, we've been very very successful in being able to pass those along if I quantify the couple of different things adjust and talked about the direct imports. Those are the ones that are really exposed to the new.
Speaker Change: Tariffs in a direct way the way we are looking at that and to help quantify for the folks on the call is overall cost of goods sold if I look at 2020 for cost of goods sold so it's kind of a baseline look at the 10-K be able to quantify that less than 10% of our global cost of goods sold or in the bucket that just.
<unk> talked about being direct imports so less than 10% of that is in there the quantification before any mitigation is less than $200 million of cost.
Speaker Change: The quantification of that 10% to 10% a little less than 10% on the indirect population to quantify that and then give you guys a little bit of visibility on the indirect that's the one adjustment was talking about that are essentially.
Speaker Change: From a U S company, but they are importing from somewhere else, that's roughly 20% of our global cost of goods sold.
Speaker Change: So the direct portion is little less than 10%.
Speaker Change: The indirect portion is less than 20% of our global cost of goods sold that 20%, we can't really quantify at this point in time, because we're not sure what is going to be passed along and we don't we're not sure what components of those items are imported by our suppliers.
Speaker Change: And so the.
Speaker Change: Key couple of key points is look these are as of tariffs as of today those could change in the coming hours or days as we all have seen and these will evolve rapidly over the changing landscape.
Speaker Change: And we're going to work diligently with our vendor partners.
Speaker Change: To try to figure out how we can mitigate some of these things I don't know if you want to cover anything else, Yes, and Scott I know you talked about pricing before we get to that level, we really as Rick talked about we work with our supplier partners, making sure that.
Speaker Change: We're in this together can we share the burden of some of these tariffs.
Speaker Change: Are there opportunities, where we can resource that product somewhere else to a different country different supplier.
Speaker Change: Reduce the impact on the tariffs are there any inefficiencies with our within our supply chain or logistics that we can remedy and help offset some of the cost and then ultimately if you think about the products that we import from Taiwan and your specific question on Taiwan every aftermarket supplier that we compete with today I'm, sorry every aftermarket competitor and distributed that we compete with.
Speaker Change: Today is importing the same exact product types from Taiwan. So we're all in this at the same level. So anything that's going to impact us is going to impact our pure aftermarket competitor and so if we can reduce the tariff impact, but some of those other mitigating levers there.
Speaker Change: We're going to obviously pass that through to the to the customer we won't be left holding the bag.
Speaker Change: Got it that's great. Thank you so much.
Speaker Change: Thank you. Our next question comes from Craig Kennison of Baird. Your line is now open. Please go ahead.
Craig Kennison: Hey, good morning, Thanks for the additional color on tariffs that's helpful maybe to pivot to Europe.
Craig Kennison: And have you seen any impact on revenue or on your fulfillment rates due to your SKU reduction program.
Craig Kennison: But no we have not.
Craig Kennison: We've been able to offset the sale of reducing that skew either to one of our private labels or to another brand that we keep.
Craig Kennison: We talked about some higher numbers that 17000, skus that we essentially de listed a lot of those things that were happening.
Craig Kennison: Along the products that we're developing right now have very very low volume at the end of the day.
Craig Kennison: Where we have other applications, we have other partners at cabinet applications. So we've not seen an impact of that most of the headwinds that we see as either competition given up price in a few markets. We do see some countries that we operate in are just an economic situation where.
Craig Kennison: There are some delays in repairs and maintenance.
Craig Kennison: Or some people are foregoing maintenance or extending maintenance on their vehicles and were seeing that impacted.
Craig Kennison: Overall, we were pretty happy with our once again, we look at it country by country to see how we're doing and how the market's doing we're pretty we're pretty confident we're not losing share.
Craig Kennison: So growing we're still gaining share and even with that revenue reduction that we saw in Europe I was pretty proud of the team to be able to deliver improvement in EBITDA.
Craig Kennison: When the volume drops normally the you lose that leverage but the team actually has stepped up on some of these initiatives. So but overall your main question I don't we don't see any risk yet.
Craig Kennison: Would slow down if we if we did on the SKU rationalization impacting revenue.
Speaker Change: Thanks, and then as it related question I think in the press release, you mentioned, a 20 basis point improvement in your private label program could you give us idea of what.
Craig Kennison: What percentage of your revenue is from private label and where you think that could go over.
Speaker Change: Some long period of time.
Speaker Change: Yes, we're in that 21% to 22% range today, we think can go to up to yes, when we talked about in our last call as Craig It would go by.
Speaker Change: By 2030, we're looking at around 30% so as we move along and look there'll be some small steps, we're happy with the 20 basis point improvement that we had in the quarter, but we think that that number will likely go close to 30% across all of Europe by 2030 timeframe.
Speaker Change: Thank you.
Speaker Change: Our next question is from Josh <unk> of Jpmorgan. Your line is now open. Please go ahead.
Josh: Hi, good morning, and thanks for taking my questions.
Speaker Change: Building on the earlier discussion I'd, just like to focus on the North American business, you highlighted targeted actions to enhance market penetration, which have positively impacted revenue along with the pricing initiatives that have improved gross margins.
Speaker Change: Could you provide some additional insights into these strategies specifically is there a link between your pricing initiative and the <unk>.
Speaker Change: Essentially easing competitive landscape as some smaller competitors, who are initially pricing aggressively.
Speaker Change: Haven't outflows back on with the tariff uncertainties, thanks, and I have a follow up.
Speaker Change: Yes.
Speaker Change: You may be confusing some of the comments on Europe. Some of the pricing pressures that we've seen have been in Europe and in a few countries that have.
Speaker Change: Put some pressure on the pricing improvements or are some gross margin.
Speaker Change: I want to make sure you specific specifically want to talk about North America or Europe.
Michael: He's talking about Michael talked about.
Speaker Change: Other improvements.
Michael: Suffering the demos.
Michael: And the earnings presentation.
Michael: Yes.
Michael: Yes.
Michael: We have seen improvements across several different parts of our business to go after some market share gains. We're pleased with the performance of things like our services business going after some some new areas of opportunity. There is not a pricing action that we took Josh so it's not we're not going after and chasing price.
Michael: And said, what we're doing is making sure that we have the best service levels.
Michael: Across the board and were seeing nice gains across that so Justin talked about the gap that we have between repairable claims than what we had for revenue that widened.
Michael: Little bigger than what we've had historically talking about how we're going after having really good fill rates nice inventory levels and being able to provide a service level to our customers in order to gain back some of that share.
Speaker Change: Understood. That's very helpful. And then just following up on the earlier discussion. Thanks again for all the color there but.
Speaker Change: Just wanted to clarify if after market thoughts inputs are subject to the 10% unit velocity radical cusano my understanding was that auto parts are exempt from the rest of <unk>.
Speaker Change: There could be.
Speaker Change: Someone wouldn't pieces in there, but it would be just helpful to clarify that.
Speaker Change: And then Relatedly you also mentioned some mitigating strategies and release them to terrorists.
Speaker Change: Is there an opportunity to introduce private table after market collision repair parts in the U S.
Speaker Change: The way to navigate this industry disruption. Thank you.
Speaker Change: Yes in regard to the <unk>.
Speaker Change: Start with the private label piece first majority of our sales that we have on the aftermarket side, our private labeled under platinum plus <unk>.
Speaker Change: The uniqueness of collision parts theres, not a lot of brand recognition and the aftermarket collision space world and create consistency.
Speaker Change: We've been branding a lot of our products as private label under under Keystone Platinum plus for for a few decades. So a majority of the collision parts hoods fenders bumper covers headlights are already branded.
Speaker Change: Regarding the tariffs.
Speaker Change: Pretty complex if you guys have researched it whether it's 10%, 25% or even 32% some of our product lines fall into different buckets of those.
Speaker Change: Specific coming from Taiwan, obviously, if you get into China. Some things are 25, some things of 145%, but on average I think the Taiwan is roughly 25, yes, So Jeff let me let me.
Speaker Change: Without going into so much detail because this is really a complex issue.
Speaker Change: There is a section 232.
Speaker Change: Deals with both steel and aluminum and Automotives.
Speaker Change: The way that the reciprocals work as it fits in those tariffs, which are 25%. They are excluded from the additional 10%. So what youre seeing is the exclusion of automotive it's excluded only because it's already got a 25% tariff on that item. So that's kind of the way to think through this so what our team has done is they've gone through every single SKU on the direct.
Speaker Change: Basis, looking at whether or not that is included in the detail and is it part of the steel aluminum or automotive and if it's not then there is a 10% recycled tariffs.
Speaker Change: Great. Thanks, so much and good luck.
Speaker Change: Thank you our next.
Speaker Change: Next question is from Gary.
Speaker Change: <unk> from Barrington Research Gary Your line is now open. Please go ahead.
Speaker Change: Hi, good morning law.
Speaker Change: You just remind me what your targets are on your SK U S rationalization in Europe.
Speaker Change: Yes, so we when we kick this project off we did say, it's going to take over three years, because we want to make sure that we're not going too fast and impacting revenue.
Speaker Change: We feel as the improvement in private label, so, adding more private label Skus on top of the reduction of our existing skus.
Speaker Change: So exact number that we quote.
Speaker Change: Let me Gary let me get back to you on those numbers I got to pull them up on the specific items that we talked about we talked about three different items that we are going to go after we're talking about SKU rationalization, we started around 750.
Speaker Change: 750.
Speaker Change: <unk> million.
Speaker Change: Millions of items that we had and we brought that down to around 700 at this point overall SKU reduction, we believe is going to get us down to say by about 600 by 202027. So we started with 750, we're going to get down to about 600, that's inclusive of private label.
Speaker Change: So we're going to we're going to obviously go below that 600, and we're going to increase based on the private labeling and then the other component. We have is obviously, we got to review these items.
Speaker Change: The goal is to get to a 100% of that by the end of 2026 by the end of 2025, we'll be at 80%. So we're north of 60 at this point, we've got another 20 to go for the rest of the year.
Speaker Change: And then the third item that we had was.
Speaker Change: Overall, private labeling and Thats the one that.
Scott: Scott I think a little bit earlier.
Scott: Or maybe Craig did trying to get up to what was that number and so what we said was about 30% by 2030.
Scott: Okay.
Scott: Thank you.
Scott: Okay.
Scott: Yes. Thank you.
Speaker Change: Our final question comes from Bret Jordan of Jefferies. Bret. Your line is now open. Please go ahead.
Bret Jordan: Hey, good morning, guys.
Bret Jordan: When you do have the tariff math and looking at the imports from Taiwan, how does delta to the OE product.
Bret Jordan: Shake out here.
Bret Jordan: The OE, primarily U S MCA compliant or domestic.
Bret Jordan: I guess netting out the tariffs is your value gap to OE remain equal or are you.
Bret Jordan: Relatively more or less expensive than you were before.
Bret Jordan: Yeah, Great question I mean, the Devil will be in the details of what the final decision is going to come out too.
Bret Jordan: As you know you've followed <unk> for a while our pricing is always typically higher than the pure aftermarket competitor just because of our quality of our service and fill rate and then we have are below the Oems. So we always kind of play in that space somewhere in the middle between OEM and the other aftermarket pure players.
Bret Jordan: If there is parity, meaning if if if all the tariffs go through and Theres really no exemption will be an equal playing field, there's enough margin gap, there, where we can and we improved price and still be competitive and offer the insurance companies in the consumer savings through the OEM, but it will really depend on what happens not only to the <unk>.
But then how do the Oems react I mean, we've actually seen a flat price change and the Oes on April and some of the prices that we've seen come through.
Bret Jordan: We're planning in May so, we havent seen them move their needle yet.
Bret Jordan: But if they're going to be experiencing some of those tariffs.
Bret Jordan: That we are then I expect them to raise their prices as well, but it will really depend on what the final decision comes through.
Bret Jordan: Okay, Great and then on the European price competition is that primarily <unk> or are there others over there that are being aggressive in other markets outside the U K.
Bret Jordan: And we always have competition on pricing the most aggressive is in the UK I.
Bret Jordan: I would say and we're starting to see some of that slow down some of their they've expanded quite a bit but we've seen that expansion slowdown, but the main domain area has been in the UK.
Speaker Change: Okay, great. Thank you.
Justin Jude: We have no further questions so back to Justin.
Justin Jude: For closing remarks.
Justin Jude: Well, we appreciate everybody joining the call today truly truly thankful for that and we look forward to speaking to everyone. In July when we report on our second quarter results.
Justin Jude: Thank you everyone and take care.
Justin Jude: Yeah.
Justin Jude: This concludes today's call. Thank you for joining you may now disconnect your line.