Pearson shares slide as print-to-digital switch hurts profits

Reuters

Published Jan 16, 2020 10:05

Pearson shares slide as print-to-digital switch hurts profits

By Paul Sandle

LONDON (Reuters) - Shares in British publisher Pearson (L:PSON) slumped on Thursday to their lowest in more than a decade after it said operating profit would be lower this year because of continued declines in sales at its U.S. higher education business.

The education company said its operating profit would be between 500 million ($650 million) and 580 million pounds in 2020, below the 590 million pounds it was set to make last year, which itself was at the bottom of Pearson's expectations.

Shares in Pearson plummeted as much as 14% in early trades to hit 532.6 pence, their lowest since October 2008. The shares were down 11% at 551.7 at 0938 GMT.

U.S. Higher Education Courseware, which accounts for 24% of Pearson's revenue, was in the final stages of "a pretty bumpy and hard analog-to-digital transition", said Chief Executive John Fallon. The division's revenue fell 12%, worse than the 5% decline expected, with text book sales down 30%.

Fallon, who will retire this year once a successor is appointed, said it had been an especially challenging few years.

"Students are now moving from print to digital far more quickly," he told reporters. "That gets us to the future state of the business more quickly but it's painful in the year in which it happens."

Pearson said its overall revenue for 2019 would be unchanged from a year earlier and that its operating profit guidance for 2020 included the 25% stake in Penguin Random House it said in December that it was selling.

Analysts at Citi said U.S. Higher Education had come in towards the lower end of the forecast range and it was clear that trends would remain "extremely tough" this year.

The new profit guidance from Pearson is likely to trigger downgrades from analysts, who had on average penciled in adjusted operating profit of 597 million pounds for 2020, according to a company-supplied consensus.

In addition to Fallon's departure announced last month, Pearson said on Thursday that finance chief Coram Williams (NYSE:WMB) was leaving to take up a position with an unnamed company. He will be replaced by his deputy Sally Johnson, Pearson said.