Pearson Drops as Sales Miss Estimates on U.S., U.K. Testing

  • Shares fall most since October as sales trail estimates
  • Company cutting jobs as U.S. spring college enrollments drop

Pearson Plc, the British education company, reported six-month sales that missed analysts’ estimates and predicted a challenging second half of 2016 after testing revenue declined in the U.S. and U.K. The stock slumped.

Sales dropped 7 percent to 1.87 billion pounds ($2.46 billion) in the first half, trailing the average estimate of 1.95 billion pounds, based on three analysts. Revenue plunged 11 percent at constant exchange rates, the London-based company said in a statement Friday.

Pearson now gets almost all its profit from education after selling the Financial Times and its half of the Economist Group last year. But the company is faced with slowing demand for textbooks and dwindling U.S. college enrollment while its reorganization to boost investment in digital services and emerging markets has yet to pay off. While Pearson kept its full-year guidance, analysts have their doubts.

“The top-line declines will raise further concerns of a profit warning in 2016,” Liberum analyst Ian Whittaker said in a note to clients.

Pearson fell as much as 12 percent, the steepest intraday slide since October, and was trading down 11 percent to 865 pence at 2:35 p.m. in London. The stock is up 17 percent this year.

Pearson said it expects stability returning to U.S. college enrollments and the U.K. qualifications market by the end of next year. The company said the 4,000 job cuts it announced in January will generate about 250 million pounds of savings in 2016 and another 100 million pounds next year.

Sales in North America dropped 8 percent in the first six months of 2016, and plunged 15 percent at constant exchange rates, to 1.16 billion pounds. Total U.S. college spring enrollments fell 1.4 percent this year, Pearson said. Combined two-year public and four-year for-profit enrollments slipped 4 percent, hit by rising U.S. employment rates.

“The markets are still quite challenging, we’re not going to see a sudden improvement, but we really think that with the growth and simplification plan that we’ve have in place that we’ve created a really strong platform,” Chief Executive Officer John Fallon said in an interview with Bloomberg TV.

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