Pearson plunges on profit warning and Penguin sale

The firm, which said its 2017 operating profit could come in as much as 19 percent below forecasts and scrapped its 2018 guidance altogether, said it would seek to sell its stake in Penguin Random House to protect the balance sheet.

Pearson said its operating profit for 2016 will meet its guidance, despite an "unprecedented decline" in its North American higher education courseware business in the fourth quarter of the year.

"It said this led sales at the key unit to dive by 30% during the final quarter of the year leading to an 18% fall over the full year".

Pearson, which sold the Financial Times newspaper and its stake in The Economist magazine in 2015 to focus on education, has been hit by a recovering US economy which has led to more people entering employment, hitting college enrollment numbers.

Bertelsmann is open to increasing its share in the world's biggest trade publishing group, Penguin Random House.

The education sector is going through an unprecedented period of change and volatility.

Pearson's share price has nearly halved in the past three years and the company has laid off thousands of employees amid sales pressures in key markets.

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Fallon sold the Financial Times newspaper and its stake in The Economist magazine in 2015 to concentrate on its education businesses. The company is seeking to build a more sustainable and growing digital business, he said.

In a trading update, the company saw a sharp decline in the sale of printed and online books to students in higher education in the US.

Pearson said its 2016 revenue fell 8% on an adjusted basis.

In particular, Pearson said it has been tightly managing discretionary costs and said it will pay out around GBP55.0 million less than originally planned under its staff incentive scheme, helping keep operating profit within the guidance range. That's around £180m lower than it had anticipated at the beginning of 2016. However, it said that from 2017 it intends to "rebase" its dividend to reflect portfolio changes, increased investment and earnings guidance.

The embattled publishing and education giant admitted it had misjudged its own markets and that profits for at least the next two years will be far lower than the City was expecting.

News Corp, which owns Dow Jones & Co., publisher of The Wall Street Journal, competes with Pearson's book publishing operations.

  • Rita Burton