Coats to exit struggling US yarns business, shares down 6%

Investing.com -- Coats (LON:COA) is set to exit its struggling US Yarns business, a move aimed at strengthening its portfolio but one that sent its stock down 6% on Thursday. 

The British company confirmed it will fully wind down operations at its North Carolina site by the second quarter of 2025, following the planned closure of its Mexico facility in December 2024. 

The exit is part of an effort to sharpen focus on higher-margin segments, a decision analysts at RBC Capital Markets describe as strategically sound despite the market’s reaction.

The US Yarns business, housed within Coats’ Personal Protection segment under the Performance Materials division, has faced persistent challenges. 

In 2024, it generated $64 million in revenue—20% of the Performance Materials total—but contributed just $3 million in EBIT. 

Issues such as rising labor costs, workforce shortages, and a high reliance on a concentrated customer base have weighed heavily on the segment’s performance.

While the closure will incur costs, Coats expects to see a modest cash inflow from the exit. 

Analysts at RBC Capital Markets note that stripping out the US Yarns business from 2024 results would have lifted Performance Materials’ margins to 18.6% from 18%, an improvement of 60 basis points.

The decision to shut down US Yarns had been anticipated, with analysts previously flagging its weaker margin potential—around 10% post-restructuring—compared to the high-teens profile of Coats’ remaining Performance Materials business. 

The exit reflects Coats’ broader push to streamline operations and focus on stronger-performing areas.

The company has yet to outline specific plans for its North Carolina workforce, but the move signals a clear shift in strategy. 

While investors reacted negatively in the short term, analysts view the decision as a necessary step in refining Coats’ portfolio and driving long-term profitability.