Pearson hit by profit warning
OVER £1.7billion was wiped from the value of Pearson yesterday as the publishing and education giant warned of lower-than-expected profits for the next two years and lower dividend payouts.
Shares in the FTSE 100 firm crashed 235p to 573p after it was taken by surprise at the rapid decline in its main profit-driving North American higher education business, where students have switched from buying textbooks to cheaper options such as rentals.
A dismal day for UK plc was capped by profit warnings from two other leading firms, Premier Foods and Mitie Group.
Pearson, which last year announced plans to axe 4,000 jobs – 10 per cent of its global workforce – after two quickfire profit warnings, is also putting its 47 per cent stake in publisher Penguin Random House up for sale. This could raise about £1.2billion. It had previously offloaded the Financial Times and its 50 per cent stake in The Economist.
Reducing its bonus payments by £55million has enabled the company to stay on track for an operating profit of £630million for 2016, but its forecast of £570-630million this year is well below City forecasts of about £700million.
It is withdrawing its profit goal for 2018 partly because of “challenging and uncertain markets”. Chief executive, John Fallon, pictured, said: “The education sector is going through an unprecedented period of change and volatility. We have already taken significant steps on restructuring, reducing our cost base by £375million last year.
“However, our higher education business declined further and faster than expected in 2016. So we are taking more radical action to accelerate our shift to digital models, and to keep reshaping our business.”
Liberum analyst, Ian Whittaker, said: “It has taken Pearson management years to accept the impact of US students’ changing buying habits. Management’s credibility is likely to be severely hit.”
Shares in Premier Foods plunged 5¼p to 42¾p after the Mr Kipling and Bisto owner warned annual trading profit would fall about 10 per cent short of previous expectations. It reported fewer multi-buy promotions by retailers as its third-quarter sales fell by 1 per cent from the previous year to £251.4million.
Meanwhile, shares in FTSE 250 cleaning, security and healthcare services group Mitie fell 9¾p to 195¾p as it posted its third profit warning in four months.