Pearson sales drop 4% in first quarter

Pearson sales drop 4% in first quarter

Pearson saw sales fall 4% in the first quarter of 2016, but has maintained trading is "in line with expectations".

The drop has been attributed to "weakness" in UK and US assessment revenues, resulting from a loss of high-profie testing contracts in the US. 

The company added that its restructure - part of a bid to deliver profits of £800m by 2018 - was "on track" with "almost half" of the 4,000 employees to be made redundant notified. The restructure will cut 10% of its workforce.

Penguin Random House's performance for the first quarter was reported as "solid", with a "strong" crop of bestsellers. However, net integration benefits were partly offset by "reduced demand" for e-books, Pearson said, following industry-wide changes in terms in 2015. Highlighted bestsellers for the period included Pope Francis’ The Name of God is Mercy, Paul Kalanithi’s When Breath Becomes Air, Mary Berry’s Foolproof Cooking, and Paula Hawkins’ The Girl on the Train.

K12 and high education courseware both grew "modestly" in the "seasonably small" first quarter, and Pearson reiterated guidance, as set out in its full-year results in February, projecting operating profits for 2016 (before costs of restructuring) of £580-620m and adjusted earnings per share of 50-55p (vs. 2015, £723m and 70.3p, respectively). 

It expects to report a "modest" operating profit for the first half of 2016, "factoring in impact of disposals" and "testing losses".

Pearson’s chief executive John Fallon said: "Pearson has had a solid start to the year, in line with our expectations. We are making good progress on our simplification plan and in our work to have a bigger impact on student learning, which will in turn support our future growth.”

Yesterday (28th April) Sky reported Pearson was preparing to sell GlobalEnglish Corp. It sold the FT and its stake in the Economist in July and August 2015, respectively, under Fallon, as part of Pearson's strategy to "focus 100%" on education.

The company's business strategy has been under intense scrutiny following a string of profit warnings and resulting decline in shares.

Fallon's strategic vision will come further under fire at this afternoon's a.g.m, where a "shareholders' resolution" will be voted on. It cites the fall in shares between April and December last year as evidence of a "crisis of confidence". The resolution brought by the Unison Staff Pension Fund, representing the National Union of Teachers (NUT), takes particular issue with Pearson's high-stakes testing activity.

Roddy Davidson, an analyst at Shore Capital, said challenges in the "diverse" US education market, digital technology and loss of contracts was putting Pearson in "an incredibly difficult position".

He told The Bookseller: "The US education market is challenging both from a trading perspective but perhaps more importantly from a curriculum perspective. And Pearson has got to cope with digital's almost a perfect storm for the business. I think what Pearson is trying to do is clearly adapt to the conditions and also to draw on the strength of its brand and its IP within education, within training, within testing. All of that has to be the right thing to do in the long run. But the execution at the moment is just proving incredibly difficult. To do that requires not just physical changes but cultural changes in the organisation, and there are quite a few variables outside their control."