Pearson Profit Rises on U.S. Education, Penguin Books

Net income was 92 million pounds
Pearson Plc chief executive officer Marjorie Scardino. Source: Pearson via Bloomberg

Pearson Plc, the owner of the Financial Times newspaper, raised its outlook for 2010 after first-half profit more than tripled on growth in its education business and at book publisher Penguin.

Net income in the first six months was 92 million pounds ($142.3 million), compared with 28 million pounds a year earlier, London-based Pearson said in a statement today. Sales rose about 9 percent to 2.34 billion pounds.

The company said 2010 earnings will advance 7 percent to 70 pence a share, driven by strong growth in U.S. higher education, testing and digital learning. Pearson gets about 65 percent of sales from education and has been expanding holdings in this market. The company, which had first-half sales growth of 7 percent in its education business, last week bought a unit of Sistema Educacional Brasileiro SA to tap growth in Brazil.

“We are trying to acquire things that are best for our long-term strategy,” Chief Executive Officer Marjorie Scardino said on a conference call today, stressing profit for the year would be “heavily-weighted to the second half.”

The company raised its interim dividend 7 percent to 13 pence a share, citing a strong start to 2010.

Pearson rose as much as 3.7 percent, trading 3.1 percent higher at 1,003 pence as of 8:43 a.m. in London. The shares have risen 13 percent this year, giving Pearson a market value of 8.16 billion pounds.

Return to Growth

Pearson said its U.S. school-publishing business as well as advertising at the Financial Times revived in the first half and MergerMarket Ltd. benefitted from better renewal rates.

Sales at the FT Group rose 9 percent to 192 million pounds. The Financial Times iPad application has been downloaded 250,000 times, Scardino said, adding that users are spending an average 25 minutes per session, well above the normal rate for most newspapers.

“The FT is growing in both digital and print advertising and all regions of the world are increasing,” she said. “We see a steady increase, though our strategy is to move away from a dependency on advertising. There is poor visibility still in advertising.”

Penguin, which celebrates its 75th anniversary this week, had revenue of 493 million pounds, up from 452 million pounds.

In May, Pearson sold its 61 percent stake in Interactive Data Corp. for $3.4 billion in the second-biggest private-equity deal this year. The company plans to use those proceeds to expand through bolt-on acquisitions, with a particular focus on technology and education businesses.

Fast-Growing Markets

Scardino said today Pearson will continue to focus on fast-growing emerging markets for its educational business as well as the FT Group, as “demand for information is as high as demand for education.”

The sale of IDC is expected to close in the next few weeks and is Pearson’s largest disposal in a decade, she said. “The lion’s share of our business now comes from institutional education,” Scardino said. “All of Pearson is now about education.”

Pearson agreed last week to pay 888 million reais ($500 million) for SEB’s learning systems division, which provides teaching methods, training and materials. The Zaher family, which owns 70 percent of SEB, will retain the school and higher education institutions of the business and become a “major customer” of Pearson, the company said.

The acquisition will bolster adjusted earnings per share from 2011 and generate a return on invested capital exceeding Pearson’s weighted average cost of capital from 2012.

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