Pearson Forecasts Earnings Decline on U.S. Textbook Demand

Pearson Plc forecast full-year operating profit excluding some items will fall from 2012, citing a slowing North American market for college textbooks.

Lower freshman enrolments and bookstore purchasing weakened demand in the U.S., Pearson said today. The merger of the Penguin book unit with Bertelsmann AG’s Random House division will reduce operating profit by about 25 million pounds ($40 million). Pearson shares fell 3.6 percent, the biggest drop since May 23.

The London-based company, which publishes the Financial Times, is spending 150 million pounds on reorganizing this year to accelerate a push into fast-growing regions and digital services. It said a slowdown in some large textbook publishing markets reinforces the need to restructure. The pace of such changes is increasing in the second half and will continue into next year, it said.

“Inevitably, this restructuring carries some short-term operational risks, but, overall, it is going very well -- and we are confident of the benefits it will bring,” Chief Executive Officer John Fallon said in the statement.

The stock fell 49 pence to 1,316 pence at the close of trading in London, paring the advance this year to 11 percent.

The company didn’t give a specific figure for full-year adjusted operating profit, and didn’t disclose the amount for the first nine months.

Education Competitors

Sales for the first nine months, stripping out effects of currency fluctuations, rose 4 percent, led by business in fast-growing markets and professional education.

Pearson is expanding digital services as it faces new rivals such as Rupert Murdoch’s Amplify, which has teamed up with AT&T Inc. in the U.S. to develop a tablet-based curriculum for school-age children.

Other competitors are also shifting the landscape for educational companies. Pay-TV operator Discovery Communications Inc. has made inroads in science publishing and is charging lower prices than Pearson because it can “piggyback on things they are producing already for their core business,” Claudio Aspesi, an analyst at Sanford C. Bernstein, said this month.

Cost Savings

Pearson said in March that the restructuring will generate about 100 million pounds of annual cost savings in 2014. The moves will strengthen digital education services and result in job cuts in some operations, Fallon said at the time, without saying how many roles would be eliminated.

The company reiterated its projection for full-year adjusted earnings per share that are little changed from 82.6 pence for 2012, before restructuring costs.

Pearson said this month that the Financial Times will consolidate its print edition into a single, global newspaper in the first half of 2014, and will use its website for breaking news. In print and online, the newspaper reached a circulation of 629,000 in the first nine months, as digital subscriptions rose 24 percent to almost 387,000.

Bloomberg LP, the parent of Bloomberg News, competes with Financial Times in providing financial news and information.

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