Pearson Plunges After Warning on U.S. University Slowdown
Pearson Sees Profit at Bottom End of Guidance on U.S. Weakness
(Bloomberg) -- Pearson Plc, the education publisher, dropped 14% after it said earnings would be at the low end of their expected range due to weakness in sales to U.S. universities.
The London-based company had set 2019 guidance for adjusted operating profit of 590 million ($729 million) to 640 million pounds, and the caution reflects shrinkage in U.S. Higher Education Courseware, a unit which makes up a quarter of Pearson revenue, the company said Thursday. The shares fell the most since January 2017, and traded at 726 pence at 8:19 a.m. in London.
Scholars are abandoning traditional textbooks faster than sales of digital learning tools can replace them, and Pearson is already undergoing a transformation program which has seen it cut jobs and sell offices, including the former headquarters of the Financial Times newspaper. It is also losing market share as customers change their consumption habits, including a trend of students using materials that they can get for free, Berenberg analyst Sarah Simon wrote in a research note Thursday.
“The company’s most profitable division continues to face multiple pressures, both structural and competitive,” she wrote. “This business doesn’t deserve the multiples it’s trading on. Pearson really has no visibility on its college business.”
The third-quarter was “significantly weaker than we expected” in the division, Chief Executive Officer John Fallon said in a statement. “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.”
The company said it saw good underlying growth in other divisions. It owns and sells testing services such as Britain’s Edexcel, which writes and regulates exams taken by millions of students, as well as English language teaching tools.
To contact the reporter on this story: Thomas Seal in London at tseal@bloomberg.net
To contact the editors responsible for this story: Thomas Pfeiffer at tpfeiffer3@bloomberg.net, Jennifer Ryan, Marthe Fourcade
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