Coats holds guidance on strong sales. targets 18% operating margin

(Sharecast News) - Industrial thread maker Coats said it expected full-year results to be in line with expectations and forecast an operating margin of around 18%, driven by strong sales growth. After a strong first half, sales growth improved to 11% in the four months to October 31 compared with 8% in the first half of 2024, with accelerating growth in footwear and continued momentum in apparel, partly offset by sustained weakness in performance materials, the company said in a trading update on Wednesday.

The apparel and footwear divisions continued to benefit from a return to normalised levels of customer buying and inventory patterns, with both showing strong year-on-year growth of 14% compared with 14% and 7% in the first half, albeit against a weaker prior year comparator due to the impact of destocking in 2023.

Performance materials sales returned to growth with a 1% increase from a decline of 3% but were still hit by lower order book activity in the personal protection and composites sectors, particularly in the Americas.

Coats said the lower capacity utilisation in the Americas continued to negatively impact the division's margins.

"Cash generation remained good through the period, and we anticipate a year-end leverage position, including the additional pension funding payment, of 1.6-1.7x, in line with previous guidance," the company said.

"Our outlook is unchanged with full year performance expected to be in line with market expectations. The group remains well positioned for the medium term, supported by good momentum in our apparel and footwear divisions and strong cash generation."

Reporting by Frank Prenesti for Sharecast.com