Pearson Plunges as Earnings Drop on North America Education

Pearson Plc fell 5.9 percent after saying it wouldn’t emerge from a difficult transition period until 2015 after earnings plunged last year on weak demand in U.S. higher education and restructuring costs.

Adjusted operating profit fell 21 percent to 736 million pounds ($1.23 billion) in 2013 from 932 million pounds a year earlier, the London-based publisher of the Financial Times newspaper said in a statement today. Sales rose 2.3 percent to 5.18 billion pounds, missing the 5.8 billion-pound estimate by analysts in a Bloomberg survey.

Pearson, which earns about 60 percent of revenue in the U.S., said in January that lower freshman enrollments and bookstore purchases hurt earnings in the country. Pearson has been reorganizing to speed growth in emerging markets and digital services as a slowdown in some large textbook markets restrains profit. Pressure on its U.S. performance should ease from 2015 as curriculum changes take effect and college enrollments stabilize, it said today.

“We are in the middle of what we believe will be a short, but difficult transition -- one that through our combined investment and restructuring programs will drive a leaner, more cash generative, faster-growing business from 2015,” Chief Executive Officer John Fallon said in the statement.

Pearson shares fell 63 pence to 1,013 pence in London, the lowest price since February 2011. That took the decline to 24 percent this year, giving the company a market value of about 8.3 billion pounds.

Earnings Forecast

The company predicted adjusted earnings per share of 62 pence to 67 pence in 2014 at current exchange rates. For 2013, adjusted EPS was 70.1 pence after restructuring charges. Pearson proposed a 7 percent increase in the dividend to 48 pence.

Pearson spent about 176 million pounds reorganizing last year, it said. For this year, it forecast net restructuring expenses of about 50 million pounds and said about 50 million pounds would be invested in expanding digital operations and businesses in emerging markets. Expenditure on restructuring will return to “more normal levels” in 2015.

Pearson said trading conditions will remain challenging this year, with declining college enrollments in North America, its largest market. Business in the U.K. will also also be hurt by curriculum changes affecting schools.

The merger of Pearson’s Penguin book unit with Bertelsmann’s Random House division reduced operating profit by about 29 million pounds last year because of the accounting treatment for Penguin Random House.

Adjusted operating profit from the North American education division dropped 24 percent to 406 million pounds. International education fell 35 percent to 140 million pounds.

Sales at the FT Group, which publishes the Financial Times, rose 1 percent to 449 million pounds.

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

In December, Pearson agreed to buy Grupo Multi, an English-language training company in Brazil, for about 440 million pounds to accelerate growth in its education business.

(Updates with closing share price from first paragraph.)
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