LKQ Corp. 1Q07 Earnings Preview

| About: LKQ Corporation (LKQ)

Before the market opens on April 26, 2007, LKQ Corporation (LKQX) will issue a press release telling us how many recycled and generic auto parts they sold in January, February and March of 2007 (first quarter).

A group called Zack's polled 9 analysts that write investment research on LKQ (not me), and came to the conclusion that on average, these analysts expect LKQ to earn (so after the company has paid all expenses for the parts, store and management salaries, and taxes), about $0.26 per every share of LKQ stock out there. If achieved, this would be about 19% better than what LKQ earned per share last year in the first quarter.

I estimate LKQ will make about $0.27 per share in the first quarter. This is based my forecast for them to sell nearly $261 million worth of stuff, about 11.2% more stuff than what they sold with the same number of facilities (so organic growth) in the first three months of 2006. And I think they will make about $10.20 in operating profit for every $100 of stuff they sell (so 10.2% operating margin).

For all of 2007, I think they will earn about $1.02 for every share folks own of the company. My forecast assumes LKQ will have about 136 facilities at the end of 2007, only about 10 more than the 126 they ended 2006 with. My forecast for what LKQ will earn in 2007 is a bit higher than the $0.99 the professional analysts are guesstimating.

I'll continue to focus your attention on my $1.85 forecast for 2012. This is the figure that determines my calculated "earnings yield" and therefore where LKQ lands in the autoretailstocks rankings.

The conference call will be at 10:30am eastern. And the webcast can be accessed via the company's website.

What I said last year about LKQ's 1Q06 results (April 28, 2006):

During the conference call, management indicated that excluding the impact from a negative impact to the gross margin line from the TransWheel (refurbished wheel business), acquisition and the new stock option accounting rule, the operating margin improved 50 basis points (year-over-year) to 11.3% on a comparable basis. In our opinion, an encouraging figure, as the core business continues to therefore show leverage (meaning the company is not just buying growth, but creating value that can be leveraged).

Management indicated that their pilot program "Last Look" with their initial insurance carrier could be described as "positive" and now they are actually moving the product to a second carrier. . .

In our opinion, this is the key to the LKQ story. We think Direct Repair Programs [DRP] that account for more than 50% of collision and repair work today will eventually evolve into dedicated centers, where the customer brings the vehicle to the insurance company center, and they then ship out the vehicles to the various collision shops. The ability to provide an estimate review therefore, or "last look" for the insurance company (the real end customer), is what we think will help LKQ revolutionize the industry as its size and scale allows LKQ to provide a comparable pricing of alternative (generic and recycled) automotive aftermarket parts where the quality of the parts can be guaranteed by LKQ. We think the ability to provide a guaranteed alternative part should help transform the usage of OEM parts (that cost a lot more) from ~70% of the parts purchased to a lot less as better systems and processes at LKQ improve the availability, inventory turn, and reliability of alternative parts. From there we think the opportunity to expand into fleet customers furthers the company's ability to increase the usage of alternative parts.

LKQX 1-yr chart:

LKQX 1-yr chart