If it’s one business I don’t understand it’s the auto parts business. When I go to my mechanic, he keeps the old parts that he replaced and sells them to a recycler. You might say that an automobile repair shop is at the forefront of recycling. Just about every used part or lubricant gets recycled in some fashion.
There are large companies out there that specialize in the collection of used auto parts (all parts from engine components to transmissions to rims), and they resell refurbished parts back to automobile repair shops or other end users.
This business has been around for quite a long time, but I’ve never really thought about until I came across a company called LKQ Corporation (NASDAQ/LKQX). This company considers itself to be one of the largest suppliers of recycled original equipment manufacturer (OEM) auto parts and assemblies. The company sells to thousands of collision-repair businesses, service shops and vehicle dealerships throughout the United States. The company has 50 locations with state-of-the-art vehicle procurement, dismantling, inventory, sales, and distribution services.
Business must be good in the used auto parts business because
LKQ Corporation has been quite successful on the stock market.
In the first quarter of 2006, the company generated record financial growth with revenues growing 44% to $192.1 million, up from revenues of $133.8 million in the first quarter of 2005. The company’s organic revenue growth for the quarter was 12.4%, while the rest was due to acquisitions.
Net income for the first quarter of 2006 also grew 44% to $12.1 million, up from net income of $8.4 million generated in the first quarter of 2005.
For the second quarter of 2006, the company currently expects its net income to rise to between $10.0 million and $11.0 million. Clearly, this company is executing its business plan right with this solid profitability.
The next time you take your car or truck in for a repair, rest assured that there is a very large and profitable used auto parts industry that will be using your old parts. Not always, but sometimes these “traditional-type” businesses can make for the very best of investments.