Pearson shares slump as weak US textbook sales hit recovery

Cost cutting enabled Pearson to reiterate its target of 2016 adjusted operating profit of between 580m pounds and 620m pounds

14:54 October 17, 2016

LONDON: Britain’s Pearson said a drop in demand for higher education textbooks in its biggest market the United States had resulted in a weaker-than-expected third-quarter performance.

Cost cutting enabled Pearson to reiterate its target of 2016 adjusted operating profit of between 580 million pounds and 620 million pounds ($720-$771 million, Dh2.64-2.83 billion) for the year. It said it would also get a 4.5 pence boost to earnings per share if current exchange rates persist until the end of 2016.

It reiterated its medium target of seeing adjusted operating profit at or above 800 million pounds in 2018.

The announcement sent shares in the education publisher tumbling 10 per cent in early trade on Monday, although the group said cost cutting and a weak pound enabled it to maintain its full-year and mid-term profit forecasts.

Pearson, which sold the Financial Times newspaper and its stake in The Economist magazine last year to concentrate on education, said poor demand for textbooks from college campuses in the United States had compounded pressures on its American and British exam marking businesses.

That led to a 7 per cent decline in organic sales in January-September, worse than the 5 per cent fall analysts had predicted.

“Some of our markets have been challenging, in particular, sales in our largest business, US higher education, are down due to cautious buying patterns from key retailers,” Chief Executive John Fallon told reporters.

“This is an industry-wide issue.” The 172-year-old company is still reeling from profit downgrades in the past few years sparked by pressures on all its major markets, and announced plans in January to cut 4,000 jobs or 10 per cent of its workforce.

It has been hit by a recovering US economy as more people entered employment, reducing college enrolment numbers.

Fallon said these changes meant colleges were taking a more cautious approach to ordering textbooks, while many students were also happy to use second-hand books rather than buy new ones.

“We see this as a temporary phenomenon that will flow through the channel over the next six to nine months,” Fallon said, adding that the group had already seen signs of improvement in September and October.

Finance director Coram Williams said based on anecdotal evidence, the group expected US higher education enrolments to be flat to down 1 per cent for this college year, although they would not have official confirmation until December.