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Will Declining Costs Drive LKQ's Results in Q3 Earnings?

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LKQ Corporation (LKQ - Free Report) will announce third-quarter fiscal 2017 results on Oct 26, before the market opens.

Last quarter, LKQ Corp. surpassed estimates by 1.92%. The company beat on earnings in two of the trailing four quarters, missed once and reported in line in the other, thus delivering an average negative surprise of 1.02%.

Let’s see how things are shaping up for this announcement.

LKQ Corporation Price and EPS Surprise

Factors to Consider

In 2017, LKQ Corp. expects organic sales growth in the 4-5.25% range against the previous guidance range of 4-6%. The acquisition of Andrew Page has been negatively impacting the company so far. Also, the company is suffering from lack of suppliers, thereby lowering inventory. Although LKQ Corp. is working toward re-establishing its supply agreements, the acquisition of Andrew Page is expected to lower its overall earnings by at least 1 cent in 2017.

Fluctuations in foreign currency translations and pressure on gross margins are a few other concerns the company has been facing.

The stock has also seen the Zacks Consensus Estimate for current-quarter earnings being revised 2.3% downward over the last 30 days.

However, LKQ Corp. is also working toward lowering its operational costs and has an aim to lower its capital expenditure within the range of $200-$225 million in fiscal 2017.

The company is focusing on expansion through acquisitions. In second-quarter 2017, it acquired a total of seven companies. Additionally, it is opening new branches of its subsidiary, Euro Car Parts Holdings, for counter sales and distribution centers in Europe.

Earnings Whispers

Our proven model does not conclusively show that LKQ Corp. is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here, as you will see below:

Zacks ESP: LKQ Corp. has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 43 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: LKQ Corp. currently carries a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

We caution against all Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Price Performance

LKQ Corp.’s stock has rallied 12.3% in the last three months, thus outperforming the 1.1% gain of the industry it belongs to.



Stocks to Consider

Here are some stocks you may want to consider as these comprise the right combination of elements to deliver an earnings beat this quarter:

Dana Incorporated (DAN - Free Report) has an Earnings ESP of +6.23% and a Zacks Rank of 1. The company is expected to report third-quarter 2017 results on Oct 26. You can see the complete list of today’s Zacks #1 Rank stocks here.

Horizon Global Corporation has an earnings ESP of +5.82% and also carries a Zacks Rank of 3. The company’s third-quarter 2017 financial results are expected to release on Oct 31.

Autoliv, Inc. (ALV - Free Report) has an Earnings ESP of +0.51% and a Zacks Rank #2. The company’s third-quarter 2017 financial results are expected to release on Oct 26.

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