Pearson Shares Plunge On Weak U.S. Sales -- WSJ

By Simon Zekaria and Razak Musah Baba 

LONDON -- Shares in Pearson PLC tumbled on Monday after the educational publisher said weaker-than-expected trading in the higher-education sector in North America weighed down on nine-month sales.

The U.S.-focused educational-products specialist, which has undergone a prolonged bout of restructuring including multibillion-dollar asset sales, said revenue fell 7% in the nine months to end-September from the same period last year when adjusted for changing exchange rates and mergers and acquisitions.

The decline was just 3% when currency factors, notably the dollar's strength against the British pound, were included, the U.K.-based Pearson said.

Weaker sales reflected "expected" declines in revenue from student-testing contracts in the U.S. and U.K., two of its most important markets, Pearson said. The company also recorded declines in North American higher-education courseware, reflecting a further draw down of inventories by retailers in July and August.

Pearson said its Penguin Random House publishing business performed better, partly from movie-tie-in sales for books such as The Girl on the Train by Paula Hawkins in addition to best-selling new work by authors Colson Whitehead and John Le Carré.

"Our markets have been challenging, but we are managing discretionary costs tightly," Pearson said, with no plans to change its earnings outlook for the full year or medium-term targets.

Investors were taken aback by the poor performance of Pearson's North American business. The stock fell as much as 10% in morning trading in London.

At the start of the year, the company launched cost-savings worth half a billion dollars and released plans to ax 4,000 staff, or 10% of its workforce world-wide after acknowledging it had underestimated the impact of trading pressures across its key markets. Rapid growth in employment and increasing education regulation in the U.S. has roiled higher-education enrollments in the company, which has put pressure on Pearson's business even as it has sought new sources of growth in countries like Brazil and China.

Pearson expects to report adjusted operating profit, before restructuring costs, of between GBP580 million pounds ($706 million) and GBP620 million in 2016, and adjusted earnings a share of share of between 50 pence and 55 pence. If current exchange rates persist until the end of 2016, that would add 4.5 pence to earnings a share, the company said.

Pearson, which used to own the Financial Times newspaper -- once its flagship publishing asset -- and a stake in the publisher of the Economist magazine, expects to report at least GBP800 million in adjusted operating profit by 2018.

News Corp, which owns Dow Jones & Co., publisher of The Wall Street Journal, competes with Pearson's book publishing operations.

Write to Simon Zekaria at [e-mail] and Razak Musah Baba at [e-mail]

(END) Dow Jones Newswires

October 18, 2016 02:48 ET (06:48 GMT)

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