Pearson PLC (LON:PSON) reported a return to sales growth in the fourth quarter, as strong demand for online learning offset continued declines in North American course materials.
New boss Andy Bird, who replaced chief executive John Fallon in October, said the group made several key appointments to accelerate its digital growth and that his broader goal is for the company to become “more consumer-focused”.
The FTSE 100 group, one of the most shorted stocks in London, said it expects adjusted operating profit for 2020 to be in the range of £310mln-£315mln, compared to £581mln in 2019, on sales down 10% compared to the previous year. Period end net debt was roughly £500mln.
The core business of North American courseware was down 13% over the year, international sales down 19% and global assessment down 14%, but online learning growing 18%.
But in the fourth quarter, online learning kept up its pace from the previous quarter with 30% growth, while assessment returned to growth at 3% and international was flat.
North American courseware, however, was down 8%.
“Uncertainty remains in the near term as a result of the ongoing pandemic, with further lockdowns, exam cancellations and reduced global mobility,” said Bird.
“However, I am excited about our future given the shift to online learning and the huge opportunity to help more people develop the skills they need.”
The shares were up 7% to a 15-month high above 720p on Wednesday morning.
Broker Shore Capital said the first update under its new CEO "summarises a challenging year during which the COVID-19 pandemic has driven a polarisation in the performance of its operations".
Shore Cap analysts Roddy Davidson said he likes the company's "financial strength, growing exposure to/substantial sunk investment in digital products and its status as a beneficiary of a positive medium-term outlook for global learning spend.
"That said, we remain cautious on short-term trading prospects and wait to get a better insight into its new CEO’s plans for the business," especially as there was no conference call with analysts this morning.
Analyst Nicholas Hyett at Hargreaves Lansdown said the pandemic has "accelerated a shift away from physical textbooks in the US and while Pearson’s been able to fill the gap with standalone eBook sales, these appear to be at lower price points".
In the long term, he said the crucial question is "whether Pearson can turn a sufficient margin from digital sales", with digital sales lower cost but a market where it is easier for rivals to compete driving down prices.
"The cumulative effect of lower costs and lower prices on profitability are as yet unclear."
--Adds price and broker comment--