Pearson to Cut 3,000 Jobs, Dividend as Education Woes Remain

  • Staff reductions part of CEO Fallon’s cost-savings plan
  • CEO creating a leaner company focused on digital education

John Fallon, CEO at Pearson PLC, speaks during a Bloomberg Television interview on May 17, 2017.

Photographer: Christopher Goodney/Bloomberg

Pearson Plc made good on a pledge to cut costs, slashing 3,000 jobs and cutting its interim dividend to preserve cash as it works on a turnaround of its struggling education business.

The staff cuts, almost 10 percent of the company’s total work force, will have “a particular focus” on managerial positions and office locations will also be reduced, Pearson said Friday. It lowered its interim dividend by 72 percent to 5 pence a share, a move signaled last month but received nonetheless with disappointment from investors.

Chief Executive Officer John Fallon has promised to cut annual expenses by 300 million pounds ($394 million) by 2019, as he tries to create a leaner company more focused on digital education. Fallon has had to accelerate savings initiatives as challenges mount in the U.S., where college enrollment has fallen and online learning and rentals are putting pressure on textbook sales. On a call, Fallon said he’s cut 10,000 jobs since becoming CEO 2013.

“As you move from being a largely analog, print-led company to a primarily digital-driven company, that’s the sort of cost savings and changes in the company you should expect,” Fallon said on a call with reporters. “It is fundamental to the long-term future of the company.”

The shares fell as much as 3.3 percent, negating an earlier rise, as investors digested the new dividend rate. The interim payout announced Friday suggests an annual distribution of about 14-15 pence, or a 2 percent yield, Liberum analyst Ian Whittaker said in a research note. The overall 2016 dividend was 52 pence.

“The dividend is at the low end of expectations,” said Jonathan Helliwell, an analyst at Panmure Gordon who rates the stock ‘Sell’. “There was hope they might have a rabbit to pull out the hat, but I see no rabbit.”

Pearson declined 3.2 percent to 647.5 pence at 9:32 a.m. in London. The stock had lost 18 percent this year through Thursday, after the company issued a profit warning in January and forecast years of gloom in the U.S. market.

The company also reported a first-half operating profit of 16 million pounds, after a loss of 286 million pounds a year earlier, and reiterated its full-year forecasts.

For a Gadfly column on Pearson and the back-to-school season, click here

The cost-savings campaign is the latest in London-based Pearson’s efforts to revive earnings amid a transforming education market. The company, which sold the Financial Times and its stake in the Economist in 2015 to invest in its education business, announced 4,000 job cuts last year and also reduced thousands of jobs in 2013 and 2014.

“No one takes pleasure in this sort of transformation that we’ve had to do,” Fallon said.

The job cuts will play out over 2 1/2 years and focus on areas like technology, as the company shifts to fewer, more scalable systems, Fallon said, as well as finance, HR and general management. He said the higher-education courseware business that has struggled is still strong and has opportunities, and investors would be “wrong to assume” it would shoulder a large part of the burden.

Last month, Pearson said it was selling a 22 percent stake in book publisher Penguin Random House to majority owner Bertelsmann SE for about $1 billion to help bolster its balance sheet. The shares fell then when Pearson said it would rebase the dividend and that it wouldn’t use proceeds of the sale to calculate the ongoing payout.

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