Business news : Compass Diversified Buoyed by Consumer Brands in First Quarter

Compass Diversified Holdings Inc. said an uptick in consumer spending in the first quarter benefited its consumer brands, which include Camelbak, Ergobaby, Fox Factory and Liberty Safe. Brisk firearms sales caused sales at Liberty Safe to rise 40.6 percent, while revenue grew 20.2 percent at Fox Factory and 18.5 percent at Ergobaby.

Alternatively, Department of Defense cutbacks had a negative impact on revenues and earnings at Advanced Circuits and Arnold, two of our industrial niche businesses. The company said it has plenty of cash to reinvest in our existing businesses and pursue additional platform and bolt-on acquisitions through the remainder of fiscal 2013. Compass Diversified, which is essentially a publicly traded private equity firm, has emerged as a significant strategic buyer of sporting goods companies in the last five years.

"Our strong results for the first quarter of 2013 exceeded management's expectations, as Cash Flow increased 25.2% compared to the year-earlier period," stated Alan Offenberg, CEO of Compass Group Diversified Holdings LLC. "We continue to achieve considerable revenue and earnings growth on a combined basis across our branded products businesses consisting of CamelBak, ERGObaby, Fox and Liberty Safe. We also maintained relative stability in the performance of our four niche industrial businesses comprised of Advanced Circuits, American Furniture, Tridien Medical and Arnold Magnetic.

“Middle market deal flow in the first quarter of 2013 was slower than typical, in part due to a high level of tax-driven transactions in the fourth quarter of 2012 resulting in a reduced deal pipeline at the start of the year,” the company repoted in its 10K. “We have recently experienced a slight uptick in the early stages of deal activity and are cautiously optimistic that deal flow will increase over the balance of this year. Valuation levels remain relatively high for high quality companies, driven by the continued availability of debt capital with attractive terms and financial and strategic buyers seeking to deploy equity capital”.

Results for the company's four branded product businesses were:

Camelbak

The table below summarizes the income from operations data for CamelBak for the three month periods ended March 31, 2013 and March 31, 2012.

		Three months ended
(in thousands)		March 31, 2013				March 31, 2012
Net sales		$	42,755			$	40,189
Cost of sales			23,136				22,014
Gross profit			19,619				18,175
Selling, general and administrative expense			8,278				8,528
Fees to manager			125				125
Amortization of intangibles			2,278				2,378
Income from operations		$	8,938			$	7,144

Net sales for the three months ended March 31, 2013 were approximately $42.8 million, an increase of $2.6 million, or 6.4%, compared to the same period in 2012. The increase in gross sales is a result of increased sales in Hydration Systems ($2.2 million), Bottles ($1.7 million) and Accessories ($0.5 million), offset in part by a decrease in sales in Gloves ($1.7 million). The increased sales is attributable to the continued success of “Antidote,” CamelBak’s reservoir for the recreational Hydration Systems line, introduced in 2010, the expansion of offerings in Bottles, such as the Eddy and the Podium line of insulated bottles, and the continued expansion in its customer base, including new and existing customers, for all product lines.

In addition, CamelBak began providing Hydration Systems as a subcontractor as part of the United States Marine Corps pack program beginning at the end of 2011 which accounted for a substantial portion of Hydration Systems sales during the fiscal quarter’s ending March 31, 2013 and 2012. The Marine Corps contract was substantially completed during the quarter ending March 31, 2013. The decrease in Glove sales in the three-months ended March 31, 2013 compared to the same period in 2012 is principally due to continuing decreased demand from the U.S. Military.

Sales of Hydration Systems and Bottles represented approximately 88% of gross sales for the three months ended March 31, 2013 compared to 84% for the same period in 2012. Military sales were approximately 36% of gross sales for the three months ended March 31, 2013 compared to 35% for the same period in 2012. International sales were approximately 21% of gross sales for the three months ended March 31, 2013 compared to 20% for the same period in 2012..

Cost of sales for the three months ended March 31, 2013 were approximately $23.1 million compared to approximately $22.0 million in the same period of 2012. The increase is due principally to the corresponding increase in sales. Gross profit as a percentage of sales increased to 45.9% compared to 45.2% in the quarter ended March 31, 2012. The increase is attributable to: (i) a favorable sales mix in Bottles and Hydration Systems during this year’s first quarter compared to last year’s quarter, and (ii) the decrease in Glove sales, which carries a lower gross profit margin than CamelBak’s other product sectors.

Selling, general and administrative expense for the quarter decreased to approximately $8.3 million or 19.4% of net sales compared to $8.5 million or 21.2% of net sales for the same period of 2012.
Income from operations for the three months ended March 31, 2013 was approximately $8.9 million, an increase of $1.8 million when compared to the same period in 2012, based on the factors described above.

Ergobaby

The table below summarizes the income from operations data for Ergobaby for the three month periods ended March 31, 2013 and March 31, 2012.

		Three-months ended
(in thousands)		March 31, 2013				March 31, 2012
Net sales		$	16,207			$	13,681
Cost of sales			6,048				5,715
Gross profit			10,159				7,966
Selling, general and administrative expense			6,577				5,414
Fees to manager			125				125
Amortization of intangibles			743				778
Income from operations		$	2,714			$	1,649

Net sales for the three months ended March 31, 2013 were $16.2 million, an increase of $2.5 million or 18.5% compared to the same period in 2012. During the three-months ended March 31, 2013 international sales were approximately $9.1 million, representing an increase of $0.9 million over the corresponding period in 2012.

International baby carrier and accessory sales increased by approximately $2.0 million, offset in part by a decrease in international stroller sales totaling approximately $1.1 million. International stroller sales were negatively impacted during the first quarter of 2013 by the timing of shipments to distributors. Domestic sales were $7.1 million in the first quarter of 2013 reflecting an increase of $1.6 million over the corresponding period in 2012. The increase in domestic sales in the first quarter of 2013 compared to 2012 is primarily attributable to increased sales of baby carriers and accessories to national retail accounts. Baby carriers and accessories represented 82.1% of gross sales in the three-months ended March 31, 2013 compared to 74.4% in the same period in 2012.

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Cost of sales for the three months ended March 31, 2013 were approximately $6.0 million compared to $5.7 million in the same period of 2012. The increase of $0.3 million is principally due to the increase in sales in 2013 compared to the same period in 2012. Gross profit as a percentage of sales was 62.7% for the quarter ended March 31, 2013 compared to 58.2% for the same period in 2012. The 4.5% increase is primarily attributable to $0.6 million in amortization expense reflected in cost of sales in the first quarter of 2012 resulting from an inventory fair value step-up as part of the purchase price allocation in connection with the acquisition of Orbit Baby in November 2011. Excluding the inventory step-up amortization charges reflected in 2012, gross profit as a percentage of sales was 62.4% in the 2012 period.

Selling, general and administrative expense for the three months ended March 31, 2013 increased to approximately $6.6 million or 40.6% of net sales compared $5.4 million or 39.6% of net sales for the same period of 2012. The $1.2 million increase is primarily attributable to increases in employee related costs due to increased headcount to support business growth.

Income from operations for the three months ended March 31, 2013 increased $1.1 million, to $2.7 million, as compared to $1.6 million the same peri

od of 2012, based on the factors described above.
 

Fox Factory

The table below summarizes the income from operations data for Fox for the three-month periods ended March 31, 2013 and March 31, 2012.

		Three-months ended
(in thousands)		March 31, 2013				March 31, 2012
Net sales		$	54,879			$	45,672
Cost of sales			39,164				32,572
Gross profit			15,715				13,100
Selling, general and administrative expense			8,187				7,380
Fees to manager			125				125
Amortization of intangibles			1,341				1,304
Income from operations		$	6,062			$	4,291

Net sales for the three months ended March 31, 2013 increased approximately $9.2 million, or 20.2%, compared to the corresponding period in 2012. Sales growth was primarily driven by sales to OEMs, which increased $7.7 million to $43.7 million during the three months ended March 31, 2013 compared to $36.0 million for the same period in 2012. The increase in net sales to OEMs is largely driven by increased spec with our customers. The remaining increase in sales totaling $1.5 million reflects increased sales to Aftermarket customers in the three-months ended March 31, 2013 compared to the same period in 2012. The increase in sales to Aftermarket customers is due to higher end user demand for our products.

Cost of sales for the three months ended March 31, 2013 increased approximately $6.6 million, or 20.2%, compared to the corresponding period in 2012. The increase in cost of sales is primarily due to increased net sales. Gross profit as a percentage of sales was approximately 28.6% for the three months ended March 31, 2013 compared to 28.7% for the same period in 2012.

Selling, general and administrative expense for the three months ended March 31, 2013 increased $0.8 million to approximately $8.2 million or 14.9% of net sales compared to $7.4 million or 16.2% of net sales for the same period of 2012. The increase is primarily attributable to increases in employee related costs required to support top line growth.

Income from operations for the three months ended March 31, 2013 increased approximately $1.8 million, to $6.1 million, when compared to the corresponding period in 2012, principally as a result of the increase in net sales and other factors, as described above.

Liberty Safe

The table below summarizes the income from operations data for Liberty Safe for the three-month periods ended March 31, 2013 and March 31, 2012.

		Three-months ended
(in thousands)		March 31, 2013				March 31, 2012
Net sales		$	29,732			$	21,151
Cost of services			22,099				16,105
Gross profit			7,633				5,046
Selling, general and administrative expense			3,421				3,052
Fees to manager			125				125
Amortization of intangibles			1,230				1,294
Income from operations		$	2,857			$	575

Net sales for the quarter ended March 31, 2013 increased approximately $8.6 million or 40.6% compared to the corresponding quarter ended March 31, 2012. Non-Dealer sales were approximately $18.2 million in the three months ended March 31, 2013 compared to $12.6 million for the three months ended March 31, 2012 representing an increase of $5.6 million or 44.4 %. Dealer sales totaled approximately $11.5 million in the three months ended March 31, 2013 compared to $8.6 million in the same period in 2012, representing an increase of $2.9 million or 33.7%. The increase in Non-Dealer sales in the three-months ended March 31, 2013 is due in large part to increased sales to Liberty’s two largest Non-Dealer accounts in connection with their expansion of new stores. Liberty is the sole provider of safes to these two accounts. In addition, the significant increase in net sales at both the Dealer and Non-Dealer level is the result of (i) strong demand for Liberty branded product by many gun owners due to increased gun and ammunition sales resulting from potential challenges by Federal and state government to the second amendment, and (ii) increased availability of import safes and safes manufactured in-house, on Liberty’s new production line.

Cost of sales for the quarter ended March 31, 2013 increased approximately $6.0 million when compared to the same period in 2012. Gross profit as a percentage of net sales totaled approximately 25.7% and 23.9% of net sales for the quarters ended March 31, 2013 and March 31, 2012, respectively. The increase in gross profit as a percentage of sales during the three-months ended March 31, 2013 compared to the same period in 2012 is principally attributable to Dealer and Non-Dealer price increases enacted during the first quarter of 2013, manufacturing efficiencies and a favorable product sales mix.

Selling, general and administrative expense for the quarter ended March 31, 2013, increased approximately $0.4 million compared to the same period in 2012. This increase is principally the result of increases in the following costs: (i) commission for the increase in sales, and compensation expense, of $0.1 million, (ii) co-op advertising and national advertising totaling $0.2 million, and (iii) other miscellaneous costs of $0.1 million, including depreciation, travel, legal, and other costs.

Income from operations increased $2.3 million during the three-months ended March 31, 2013 compared to the same period in 2012, principally as a result of the increase in net sales and other factors, as described above.

Source Compass Trust through SportsOneSource

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