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Compass Diversified posted improved first-quarter performance, with subsidiary adjusted EBITDA up 6.3% to $83.9 million and operating cash flow rising to $23.9 million, helped by strong consumer results and lower capital spending.
The company used proceeds from the Sterno food service sale to repay more than $280 million of debt, cutting leverage to about 5x and moving CODI closer to its long-term target of 3x to 3.5x.
Management raised its 2026 outlook after the divestiture, now expecting subsidiary adjusted EBITDA of $320 million to $365 million, while noting that consumer brands like The Honey Pot and BOA are driving growth even as industrial businesses remain mixed.
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Compass Diversified (NYSE:CODI) reported first-quarter 2026 results that management characterized as a period of execution, highlighted by a divestiture, debt reduction and growth in subsidiary adjusted EBITDA despite macroeconomic uncertainty.
Chief Executive Officer Elias Sabo said the company began the year with a “clear plan” and had delivered against several priorities, including the sale of Sterno’s food service business, completion of a sale-leaseback at Altor and the application of proceeds toward debt reduction. He said the company’s subsidiaries generated strong operating cash flow in the quarter, which he described as a hallmark of CODI’s model.
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“Our path is clear. De-leverage. Drive continued operational performance. Further align management incentives. Over time, close the gap between our share price and intrinsic value,” Sabo said.
Chief Financial Officer Stephen Keller said GAAP net revenues for the first quarter were $427 million, down 5.9% year over year, reflecting the inclusion of Lugano in the prior-year period. Lugano was deconsolidated after its bankruptcy filing last November. GAAP net loss from continuing operations was $30.8 million, an improvement of approximately $19 million from the prior year, primarily due to the absence of Lugano’s losses in the current period.
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On a non-GAAP basis excluding Lugano from the prior year, Keller said net sales were in line with the prior-year period. Strong double-digit growth at The Honey Pot and Arnold was offset by challenges at Altor, which management attributed largely to unfavorable macro trends.
Subsidiary adjusted EBITDA was $83.9 million, up 6.3% from the prior-year period. Consumer adjusted EBITDA rose 11.6%, while industrial adjusted EBITDA declined 4.5%. Keller said Arnold nearly doubled year over year, but industrial growth was offset by top-line headwinds at Altor.
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Operating cash flow totaled $23.9 million, a meaningful improvement versus the prior year, while capital expenditures were $5.1 million, less than half of the prior-year period. Keller said the results reflected disciplined capital allocation and the capital-efficient profile of the company’s subsidiary businesses.
Sabo said CODI’s consumer businesses produced double-digit adjusted EBITDA growth in the quarter, with The Honey Pot and BOA among the strongest contributors.
The Honey Pot posted revenue growth of nearly 25% and EBITDA growth of more than 40% compared with the prior-year period. Sabo said the brand continued to gain share across the feminine care category, helped by expanded distribution and consumer adoption as it expands beyond its original focus into the broader period care category.
During the question-and-answer portion of the call, Sabo said The Honey Pot’s growth is being driven by market share gains and brand expansion into period care, a market he described as much larger than the company’s original category of washes and wipes. He said the brand’s “better-for-you” positioning has resonated with younger consumers.
BOA reported revenue growth of 6.5% and EBITDA growth of 11% from the prior-year period. Sabo said the BOA Fit System continues to see adoption across snow sports, cycling, workwear and other categories. In response to an analyst question, he said BOA is in a stronger position after a period of volatility and should be able to produce double-digit growth on a continuing basis.
5.11 Tactical delivered what Sabo described as solid margin performance and strong cash flow despite modest top-line pressure. He said the company is working to broaden its appeal beyond its core professional customer base, including through a new retail format in Seattle that outperformed the chain average on opening weekend.
Sabo also said a new leadership team at PrimaLoft is “getting up to speed” and laying groundwork to accelerate future growth while maintaining a profitable, low-working-capital business model.
In the industrial portfolio, Sabo said Arnold delivered a standout quarter, with adjusted EBITDA nearly doubling year over year despite geopolitical dynamics around rare earth supply and continued export restrictions from China. He said those dynamics create near-term headwinds but reinforce longer-term demand for secure non-China sources of rare earth magnet supply.
Sabo said Arnold’s Thailand facility is ramping up, adding capacity and supply chain redundancy for aerospace, defense and industrial customers that prioritize supply chain security and performance reliability.
Altor, however, remained a “work in progress,” Sabo said. The business faced a challenging quarter due to competitive pressure in the cold chain market and consumer headwinds in the appliance market. Management said the team is focused on optimizing the combined platform following the Lifoam acquisition and improving commercial execution.
CODI also discussed Rimports, the home fragrance platform retained after the sale of Sterno’s food service business. Sabo said 2026 will be a transition period for Rimports as it absorbs stranded costs from the separation and works through an updated commercial relationship with a large customer. Keller later said Rimports is expected to be somewhat lower this year than last year and that cost levels will need to be adjusted over time.
CODI ended the quarter with $65 million in cash and cash equivalents and nearly full availability on its $100 million revolver. Keller said the company’s leverage ratio for debt covenant purposes was approximately 5.3 times at quarter-end.
Following the close of the Sterno food service sale, Keller said CODI repaid more than $280 million of senior secured term loan debt. The transaction reduced total leverage to approximately 5 times and brought senior secured net leverage below 1 time. He said the debt repayment also allowed the company to avoid milestone fees under its senior credit facility that otherwise would have applied beyond June 30.
In response to an analyst question, Keller said CODI’s long-term leverage goal remains about 3 times to 3.5 times, while the company’s current key milestone is getting below 4 times. He said that once leverage falls below 4 times, CODI could consider returning capital to shareholders, potentially through share repurchases, depending on the stock price and discount to intrinsic value.
Sabo said CODI is continuing to pursue additional divestitures but cautioned that M&A markets remain choppy. He said the company has urgency because leverage remains too high and management believes the stock does not reflect intrinsic value, but added that CODI would not sell an asset if market conditions significantly undervalued it.
CODI updated its full-year 2026 outlook to reflect the sale of Sterno’s food service business. The company now expects subsidiary adjusted EBITDA of $320 million to $365 million. Keller said the range, adjusted for the divestiture, is at or above the expectation set at the start of the year.
Consumer adjusted EBITDA is expected to be $225 million to $260 million.
Industrial adjusted EBITDA is expected to be $95 million to $105 million, including some stranded costs related to the Sterno sale.
Capital expenditures are expected to be $30 million to $40 million.
Corporate cash management fees are expected to be $25 million to $30 million.
Keller said the outlook excludes potential acquisitions or divestitures, other than the Sterno food service sale, and does not include any significant impact from the evolving trade environment.
Management said tariffs have created market uncertainty but are currently providing a tailwind across multiple businesses. Keller said the company expects one-time tariff-related refunds during 2026, though the timing and magnitude remain difficult to forecast. He said any historical tariff refunds would be identified as one-time benefits when reported.
Sabo also said CODI has initiated a review of its management services agreement and is evaluating opportunities to further align incentives and drive shareholder value. He said the company expects to provide updates in the coming months.
Compass Diversified Holdings (NYSE:CODI) is a publicly traded private equity company headquartered in Bethesda, Maryland. The firm specializes in acquiring and managing middle-market businesses across a variety of industries, with a focus on driving operational performance and sustainable growth. As an externally managed entity, Compass Diversified leverages a disciplined investment approach to build a portfolio of market-leading companies that benefit from strategic oversight, capital support and shared best practices.
Compass Diversified's investment activities span five core sectors: branded consumer, consumer services, differentiated industrial products, value-added distribution and business services.
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The article "Compass Diversified Q1 Earnings Call Highlights" was originally published by MarketBeat.
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