Pearson to Slash Jobs, Warns on Profit - 2nd Update
January 21 2016 - 05:04AM
Dow Jones News
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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