Pearson profits to slip on weak U.S. college demand

LONDON Wed Oct 30, 2013 7:13am EDT

LONDON (Reuters) - British publisher Pearson said it expected 2013 adjusted operating profit to be lower than last year due to weaker demand for college textbooks in its North American Education division, sending its shares sliding.

The group did, however, reiterate its full-year earnings guidance - its key forward-looking metric - after reporting nine-month underlying sales up 2 percent due to strong demand in its professional and emerging markets divisions.

Analysts, who said the lower profit forecast had been expected, described Wednesday's trading update as mixed but said they did not expect to change their forecasts for the education and media group, which owns the Financial Times newspaper.

"While international education sales have accelerated, as expected, there is a more negative tone on North American education margins and the North American higher education business, which is our chief area of structural concern," analysts at Liberum said in a note.

Pearson's shares were down 3.15 percent at 1322 pence by 1105 GMT after they hit a 12-year high in the run-up to the results.

Pearson has undergone a raft of management and structural changes in the last year including the merger of its Penguin books division with Random House, designed to increase its focus on emerging markets and digital services.

The group said the operating profit would be lower due to the weaker demand in its North American Education division and accounting changes related to the books merger.

Education margins are expected to be lower than in 2012 due to pressures in North American Education margins following lower freshman enrolments and weak bookstore purchasing.

The group said underlying revenue was up 5 percent in its international education unit, up 8 percent in its professional education division and flat in North American Education.

"Market conditions remain strong in digital, services and emerging markets, but are more challenging in some of our largest textbook publishing markets," Chief Executive John Fallon said.

"This reinforces the importance of our strategy of accelerated change, so that we can shift more capital and talent more quickly towards these significant growth opportunities."

Overall, the group reiterated its full-year earnings guidance for adjusted earnings per share to be broadly level with last year, at 82.6 pence.

The group, which put its M&A-focused Mergermarket news service up for sale in July, said the process to explore a sale was progressing well.

(Reporting by Kate Holton; editing by Rhys Jones and Mark Trevelyan)

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