By Simon Zekaria 

LONDON-- Pearson PLC on Thursday launched a fresh cost-savings plan and announced plans to cut 10% of its workforce, after it cut its full-year earnings guidance and again warned on profit.

The London-based educational-products specialist, which makes most of its revenue from educational services in the U.S., said it underestimated the impact of trading pressures across its key markets, plans to simplify its business, cut costs and focus on fewer, bigger opportunities.

Pearson, which recently sold high-profile publishing assets to raise funds for growth and cut operating profit, said it expects adjusted operating profit to be at or above GBP800 million ($1.13 billion) in 2018, based on a recovery of its business in the U.K. and U.S.

Pearson's shares jumped 10% in early trading, as investors reacted favorably to the company's update.

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

Pearson said Thursday it plans to cut 4,000 jobs.

"We are moving quickly to implement this restructuring and are planning to complete the majority of it by the half year, and all of it by the end of the year," it said in a statement.

Pearson said rapid growth in employment and increasing regulation in the U.S. has resulted in higher-education enrollments falling approximately 10% from a peak of around 21 million in 2010 to about 19 million in 2015.

It also said certain enrollments in the U.K. have fallen and purchases of textbooks in South Africa had dropped significantly.

"In combination, these factors have reduced Pearson's operating profit by approximately GBP230 million from its peak. We overestimated how quickly those markets would return to sustainable levels of revenues and profits from their peak," it said.

The group said will take on restructuring costs of approximately GBP320 million in 2016 and expects to book yearly savings of approximately GBP350 million, with approximately GBP250 million in 2016 and a further 100 million in 2017.

"Our competitive performance during the last three years has been strong, but the cyclical and policy related challenges in our biggest markets have been more pronounced and persisted for longer than anticipated," said Chief Executive John Fallon in a news release.

Mr. Fallon also noted a paring of the company's focus. "We are today announcing decisive plans to further integrate the business and reduce the cost base, rationalize our product development and focus on fewer, bigger opportunities."

"We are broadly encouraged that Pearson has decided to redouble its efforts to meet external and internal challenges," said Shore Capital analyst Roddy Davidson.

Pearson is plowing proceeds from the sales of publishing assets 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 in recent years 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.

The company said Thursday it expects to report adjusted operating profit in 2015 of approximately GBP720 million and adjusted earnings per share of between 69 pence and 70 pence. It previously forecast EPS to come in at the lower end of a range of 70 pence to 75 pence. In October, the company also cut its forecasts.

It intends to propose an unchanged final dividend of 34 pence a share, giving a total dividend for 2015 of 52 pence a share, up 2% year-over-year on 2014.

In 2016, it expects to report operating profit and adjusted earnings per share before restructuring costs of between GBP580 million and GBP620 million and between 50 pence and 55 pence, respectively. Operating profit after restructuring charges is expected to be in a range of GBP260 million to GBP300 million.

News Corp, which owns Dow Jones & Co., publisher of The Wall Street Journal, competes with Pearson's book publishing, business-news and education divisions.

Write to Simon Zekaria at simon.zekaria@wsj.com

 

(END) Dow Jones Newswires

January 21, 2016 04:49 ET (09:49 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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