Pearson PLC (LON:PSON) shares dropped on Wednesday with revenue from its US education publishing business continuing to decline, although an increase in estimated cost savings led the group to narrow its guidance for 2019 profits to mid-range as it continues its restructuring.
The FTSE 100-listed firm estimates adjusted operating profit of between £590mln and £640mln for the current year and anticipates cost savings of £330mln, ahead of the £300mln target.
READ: Pearson revenue flat in 9-month trading update, still sees underlying profit growth
It sees underlying pressures in its US Higher Education Courseware (HECW) business persisting with revenue falling up to 5%. The rest of the business is expected to show growth with a good performance in online programme management (OPM), virtual schools, professional certification and English.
For the 2018 financial year, the group narrowed its guidance range to between £540mln and £545mln from a previous forecast of £520mln and £560mln. That compares to adjusted operating profit of £576mln in 2017.
Total underlying revenue in 2018 fell 1% as declines in US HECW and US K12 courseware offset growth across the rest of the business.
Pearson intends to sell its US K12 school business in the latest stage of its restructuring to turn around the business after the cost of moving to digital form paper textbooks led to a series of profit warnings.
The company has already sold the Financial Times newspaper, the Economist magazine and a stake in book publisher Penguin Random House to focus on education and has adjusted to the shift online.
"We have made good progress in 2018, returning Pearson to underlying profit growth,” chief executive John Fallon said.
“We are also building a platform to enable Pearson to achieve its full digital potential, empowering more people around the world to learn the knowledge and skills to flourish in the changing world of work. There is much still to do, but we are increasingly confident in Pearson's potential to grow and prosper."
Running to stand still
In early afternoon trading, Pearson shares were down 7.7% at 901.60p.
Russ Mould, investment director at AJ Bell commented: “Academic publisher Pearson looks to be running to stand still based on the latest trading update. While 2018 profit is expected to be bang in the middle of previous guidance, this is backed by larger than expected cost cutting.
“Without these extra savings, the company would probably have been slightly short of expectations and would have been putting up a mild profit warning.”
He added: “Investors will be disappointed that the key structural headwind for the company – the fact demand for expensive academic textbooks in the US has fallen away as students go online instead – remains an issue.
“Having contributed to a string of profit warnings, this part of the business remains a big drag on revenue and growth elsewhere is not yet sufficient to outweigh it.
“At least the company is backed by a strong balance sheet. This at least gives it some breathing room while investors wait to see evidence it is completing the transition necessary to put it back on a sustainable growth path.”
-- Adds share price, analyst comment --