Pearson’s shares plunge on lower profit expectations

Mark Johnson's picture

Shares in FTSE 100-listed education publisher Pearson fell more than 18% on Thursday, after the firm said full year profits would be at the lower end of its guidance range.

The company said that although it expects revenue to stabilise this year, weaker than expected trading in its US Higher Education Courseware business means it now expects adjusted operating profit to be at the bottom of the guidance range of £590m to £640m

In a trading statement issued via the London Stock Exchange Pearson said it expects group underlying revenue to be broadly flat with core markets up 5%, growth up 3% and North America down 3%.

US Higher Education Courseware (25% of revenue) it said would be down by around 10%. 

Digital shift

The firm also said it expects to see the balance between its digital and print split divisions to shift from 55%:45% at the end of last year to 65%:35% at the end of this year.   

Pearson said that underlying pressures from lower college enrolments and use of Open Educational Resources were all largely as expected. 

However, we believe the weaker than expected trading has been driven “channel partners and students turn[ing] away from print products more rapidly than anticipated.”

It also blamed delivery issues around the implementation of a new Enterprise Resource Programme last year as well as the re-organisation of its sales force. 

Pearson said its strategy to move to more affordable access based models such as Inclusive Access, digital products and partner print rental will result in a more sustainable and predictable business. 

"The third quarter has been significantly weaker than we expected in US Higher Education Courseware”, John Fallon, Chief Executive said. 

“Whilst difficult in the short term this places more importance on our work to remake this part of Pearson and we are exploring new ways of deploying our new technology platform so that we can offer students highly affordable, convenient, adaptive, digital courseware. 

“We still expect revenue across Pearson as a whole to stabilise this year, with encouraging growth in many parts of the company."

Perason’s shares were down 18% at £7.05 midmorning on the London market.