Troubled publishing giant Pearson PLC (LON:PSON) saw its shares surge higher after it said it is considering selling its US school courseware business and will launch another cost cutting drive in the latest attempt to turn around its fortunes, as first quarter underlying sales rose.
In a trading update ahead of today’s annual general meeting, the FTSE 100-listed group announced a strategic review of its K12 courseware publishing business.
It also said it aims to cut its cost base by £300mln a year by the end of 2019.
READ: Pearson confirms massive 2016 loss after huge write-downs
CLICK HERE: For a daily round-up of all the Proactive news
The firm declared: “These actions will create a more scaleable, more digital business capable of growth and margin improvement.”
Pearson, which has issued five profit warnings in four years after students in the US started renting rather than buying text books, said its first quarter trading had been in line with its guidance and it reiterated its full-year target.
The group added that its sales in the first three months of the year increased by 6% in underlying terms.
In its statement, Pearson's chief executive John Fallon said: "Though the bulk of our sales come later in the year, our first quarter trading is encouraging and in line with expectations.”
He added: “The measures we are announcing today build on the work completed last year and will allow us to further simplify our portfolio, reduce costs and accelerate our digital transformation."
In early trading Pearson shares surged to the top of the FTSE 100 leader board, up almost 12%, or 77p to 735p.
Analyst says Pearson CEO "doesn’t do things by halves"
Nicholas Hyett, equity analyst, Hargreaves Lansdown, said: “You’ve got to hand it to Pearson CEO John Fallon, he doesn’t do things by halves.
“Every quarter it seems that another part of the staid publishing house he inherited is laid on the block in the drive to move the group into the digital age – this time it’s the turn of the K12 US courseware business.”
He added: “Unchanged full year guidance and a positive performance from North America are both likely to be taken well by the market given Pearson’s recent profit warning.”
“However,” the analysts concluded, “Pearson’s current strategy remains a higher risk bet on the group’s ability to seize market share in the emerging digital education space.
“Even then, with plenty of free resources already available online, questions remain about whether the group will be able to make that market share profitable.”
-- Adds share price, analyst comment --