Pearson shares plunge after education firm reports sales slump
Shares in Pearson plunged 11% in morning trading after it reported falling revenues, with the chief executive admitting that a sales slump in higher education course materials came as an "unpleasant surprise".
Investors took flight after the former owner of the Financial Times and The Economist reported a 7% drop in underlying global sales in the nine months to September, impacted by a 9% revenue slump in North America.
"I think the thing that... has caught people by surprise is that the revenue declined in our biggest business, our higher education courseware business, which is essentially about providing digital and printed content and courseware to universities in America," Pearson's chief executive John Fallon told the Press Association.
"It's down more than we had thought, and the market had expected, at the start of the year."
The US remains a huge market for the company, having accounted for about 63% of Pearson's sales in 2015.
Pearson's FTSE 100-listed shares were down more than 11% or 92.5p at 740p.
Mr Fallon called the slump an "unpleasant surprise", but stressed that the sales dip was likely a "one-off" correction of the levels of inventory carried across North American campus bookstores, and that the issue will "unwind" over the next six to nine months.
"There is no fundamental change in the buying behaviour of students or the propensity of faculty or professors to recommend or adopt our courseware."
Meanwhile, a major cost-cutting programme has helped Pearson maintain its full-years earnings guidance of £580 million to £620 million for 2016.
Pearson announced in January that it would cut the equivalent of 4,000 full-time staff across the business as part of an efficiency drive. The company now says that over 90% of those affected have been given their notice.
The programme is meant to deliver annual cost savings of around £350 million.
The company is also feeling the tailwinds of a weaker pound, saying that if current exchange rates persist until year-end, earnings guidance per share will jump by around 4.5p to between 54.5p and 59.5p.
Hargreaves Lansdown equity analyst George Salmon said: "Despite enjoying the benefits of a weaker pound, sales have been falling recently and there was little in today's update to suggest that the tide is changing."
Mr Salmon added: "Having sold off The Economist and The Financial Times, Pearson is now relying on its core educational businesses for forward momentum, but convincing customers to continue paying for its content represents a huge challenge to the group against a backdrop of free educational resources popping up online."