PSO Pearson Plc

By Simon Zekaria 

LONDON-- Pearson PLC on Thursday said it is launching fresh cost-savings worth half a billion dollars and plans to ax 10% of its workforce world-wide after cutting its earnings guidance.

The London-based company, which makes most of its revenue from educational services in the U.S., announced it is cutting 4,000 jobs and said it had underestimated the impact of trading pressures across its key markets.

The educational products specialist plans to simplify its structure by merging businesses and focus on fewer, bigger opportunities.

Pearson has raised $2.5 billion from disposals over the last three years, including its flagship publishing asset, the Financial Times newspaper, to fund its growth across global education, which includes textbooks in Western markets, digital learning programs and English-language schools.

In August last year, Pearson sold its 50% non-controlling stake in the publisher of the Economist magazine for $731 million. The disposal followed its sale of the FT Group, which includes the Financial Times newspaper, to Nikkei Inc. of Japan for $1.32 billion.

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

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," the company said.

It also warned that profit would be lower next year as it absorbs the costs of its reorganization, which are forecast to hit GBP320 million ($451 million) in 2016.

However the company said this restructuring will yield savings of approximately GBP350 million, including approximately GBP250 million this year, and Chief Executive John Fallon said Pearson has "solid grounds" to expect a boost in the medium term.

Pearson expects to report adjusted operating profit of GBP720 million for 2015 and believes this figure will reach GBP800 million in 2018, based on a recovery of its business in the U.K. and U.S.

"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," Pearson said in a statement.

"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 Mr. Fallon.

"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."

Pearson's shares jumped 15% as investors reacted favorably to the company's update, with analysts saying the measures taken reflect the group's outlook.

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

Pearson has 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.

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.

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 08:28 ET (13:28 GMT)

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