Further profit warning from Pearson

Further profit warning from Pearson

Pearson has issued a second profit warning for 2013, saying the year had seen weaker than expected trading in both the US and the UK – its two largest markets.

The education company, which has spent the last year restructuring its business in order to push into emerging markets, warned that its operating profits for 2013 would be below analysts’ expectations after the costs of restructuring exceeded previous guidance by around £30m.

Pearson first warned of a profit fall last October, citing the accounting impact of the Penguin Random House merger as a factor.

However, this morning the company has revealed it has also faced "tough market conditions throughout 2013" due to "cyclical, policy-related and structural pressures" which affected education publishing and assessment businesses in North America and the UK.

UK textbook sales were impacted by “policy changes affecting qualifications and textbook publishing."

The trading statement added: “We continued to achieve strong growth in emerging markets, digital learning and new service-based business models and we continue to invest behind those growth opportunities.”

Operating profits were approximately £865m in 2013, or £735m after restructuring charges. Pearson now expects earnings per share after restructuring charges to be around 70p, compared with previous consensus forecasts of around 76p.

John Fallon, Pearson chief executive, said: "Pearson made good progress on our strategic goals in 2013 but our trading and financial performance has been weaker than expected, particularly in North America.  With trading conditions still challenging in 2014, this further underlines the importance of the work we started in 2013 to reduce our established cost base and redirect our investment towards our biggest future growth opportunities.”

Fallon said the company would “accelerate” its transformation in 2014 and “remain confident about our growth prospects in 2015 and beyond.” He reiterated: “Pearson will emerge from this transitional phase as a stronger, faster growing company, better able to tackle some of the biggest problems in global education."

The trading statement also revealed that Penguin Random House achieved a solid fourth-quarter publishing performance and traded “in line with the expectations” in the run up to Christmas. It went on to say: “For the full year, we expect our total interest charge to adjusted earnings to be slightly higher than the £65m reported in 2012 and our effective tax rate to be lower, reflecting the Penguin Random House associate accounting and agreement on historic tax matters.”

Pearson, also the owner of the Financial Times, said the newspaper saw good profit growth, with digital subscriptions growing strongly, offsetting weak advertising sales and planned reductions in print circulation.