Pearson Declines Most Since 2002 on Digital-Expansion Costs

Pearson Plc fell the most since 2002 after reporting higher costs to push into digital services and emerging markets as the owner of the Financial Times seeks to offset waning demand for textbooks in North America.

Pearson spent about 170 million pounds ($282 million) reorganizing last year, the London-based company said in a statement today. That compared with its earlier prediction of 150 million pounds.

“The real shock will be on restructuring,” said Ian Whittaker, a media analyst at Liberum Capital in London, who recommends selling the stock. Savings from the reorganization amounted to 40 million pounds last year, Pearson said. That missed its previous projection of 50 million pounds.

The publisher, which earns about 60 percent of its revenue in the U.S., said lower freshman enrollments and bookstore purchasing weakened demand in that country. Its merger of the Penguin book unit with Bertelsmann AG’s Random House division reduced operating profit by about 29 million pounds last year because of the accounting treatment for Penguin Random House.

Pearson fell 8.2 percent to 1,191 pence at the close of trading in London, extending the decline this year to 11 percent.

Challenging Conditions

“Pearson made good progress on our strategic goals in 2013 but our trading and financial performance has been weaker than expected, particularly in North America,” Chief Executive Officer John Fallon said in today’s statement. “With trading conditions still challenging in 2014, this further underlines the importance of the work we started in 2013.”

The company is expanding digital services as it faces rivals such as Discovery Communications Inc. and Rupert Murdoch’s Amplify, which teamed up with AT&T Inc. in the U.S. to offer a version of the Amplify Tablet Plus package that gives students continuous connectivity. A warehouse closure announced late last year increased restructuring expenses, and cost savings were held back by a later-then-anticipated sales reorganization.

Pearson predicted it will have net restructuring expenses of about 50 million pounds this year.

Earnings per share for 2013 was about 83 pence, in line with previous projections and operating profit before restructuring charges was about 865 million pounds, Pearson said in today’s statement. Pearson announces 2013 full-year earnings on Feb. 28.

Before it's here, it's on the Bloomberg Terminal.