PSO Pearson Plc

By SIMON ZEKARIA 

LONDON--Shares in Pearson PLC dropped more than 16% on Wednesday after the education company warned of tough market conditions and cut its full-year earnings guidance.

Pearson, which makes most of its revenue from educational services in the U.S., said it expects adjusted earnings a share for 2015 to come in at the lower end of a range of 70 pence to 75 pence, down from a previous range of between 75 pence and 80 pence.

"The key cyclical and policy-related factors which have been hurting our markets for some years have yet to improve," said Chief Executive John Fallon.

Shares in the company, which has recently sold trophy publishing assets such as the Financial Times newspaper, fell sharply on the news to 996 pence, down 16%. Bernstein analyst Claudio Aspesi said the earnings forecast downgrade is "extremely disappointing" and that "a lack of visibility on the business is becoming painful to manage."

Pearson said third-quarter sales fell 2% compared with the same period last year. For the nine months of 2015, sales rose 2%.

The company said its trading performance remained strong in the first nine months of the year, with share gains across major markets including the U.S. and U.K. However, it said some of its operations, including U.S. higher education and emerging markets, were hit.

"In particular, lower community college enrollments and higher returns [affected] the U.S. higher education market, and lower purchasing in certain provinces affecting the school textbook market in South Africa," Pearson said.

Pearson also said the revised earnings forecast was made following the disposal of PowerSchool, FT Group and The Economist Group, as well as movements in foreign-exchange rates.

It added that the guidance was based on current exchange rates continuing to the end of the year, no further acquisitions or disposals, a tax rate of approximately 15% and an interest charge of approximately GBP70 million ($108 million).

In August, Pearson sold its 50% noncontrolling stake in the publisher of the Economist magazine for GBP469 million. The disposal swiftly followed Pearson's landmark sale of the FT Group, which includes the Financial Times newspaper, to Nikkei Inc. of Japan for GBP844 million.

Pearson is plowing proceeds from the deals into its global education business, which includes textbooks in Western markets, digital learning programs and English language schools.

It has restructured its operations and booked hundreds of millions of dollars in cost savings to counter a slowdown in mature educational markets and boost its push into emerging economies such as Brazil and China where there is greater demand for learning services.

Write to SIMON ZEKARIA at simon.zekaria@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

October 21, 2015 05:03 ET (09:03 GMT)

Pearson (NYSE:PSO)
Historical Stock Chart
From Mar 2024 to Apr 2024

Pearson (NYSE:PSO)
Historical Stock Chart
From Apr 2023 to Apr 2024