Helsinki - Pearson
cut its profit forecast for this year, signalled it will lower the dividend and
announced plans to sell its stake in publisher Penguin Random House as the UK
company struggles with plunging sales of textbooks in the US. The shares sank
as much as 24 percent.
Operating
profit in 2017 will be 570 million pounds ($704 million) to 630 million pounds,
the London-based company said in a statement Wednesday, below the average
analyst estimate compiled by Bloomberg of 681.9 million pounds. The world’s
largest education company withdrew its profit goal for 2018 after sales of
materials for US higher education dropped 30 percent in the fourth quarter.
“Whereas we
had previously anticipated a broadly stable North American higher education
courseware market in 2017, we now assume that many of these downward pressures
will continue,” the company said in the statement.
The planned
sale of the Penguin Random House stake signals CEO John Fallon is doubling
down on the education business, seeking to resurrect sales even amid sluggish
demand for textbooks, dwindling US college enrolments and declines in its testing
business. Fewer older students are enrolling, community college admissions also
are dropping, and more students are renting textbooks, Pearson said.
Read also: Pearson sees lower profit
Selling the
stake gives an opportunity to German media giant Bertelsmann, Pearson’s partner
in the venture, to acquire full control of the world’s largest book publisher.
Pearson plans to use the proceeds from its 47 percent stake to invest in its
business, strengthen its balance sheet and return excess capital to
shareholders, the company said. The stake may fetch 1.2 billion pounds in a
sale, according to Ian Whittaker, an analyst at Liberum in London.
Pearson
sank 22 percent to 633.50 pence at 8:10 a.m. in London, cutting the company’s
market value to 5.2 billion pounds.
Combination
Pearson
combined Penguin with Bertelsmann’s Random House in 2013, leaving the British
company owning just under half of the venture, which publishes books from
writers including John Grisham, Ken Follett and George R. R. Martin. In 2015,
it generated revenue of 3.7 billion euros ($3.95 billion) and operating
earnings before interest, taxes, depreciation and amortisation of 557 million
euros.
Bertelsmann
is open to increasing its stake in the venture “provided the terms are fair,”
CEO Thomas Rabe said in a statement. “Strategically this would not only
strengthen one of our most important content businesses, it would also once
further strengthen our presence in the United States, our second largest
market,” Rabe said.
Pearson
gets almost all its profit from education after already selling the Financial
Times and its half of the Economist Group. The company announced a reorganisation
last year as it seeks to address sluggish demand in its main business.
Read also: Pearson exits The Economist Group
Pearson
also indicated that its dividend, which amounted to 52 pence a share for 2016,
will be cut beginning this year to reflect the lower earnings guidance. The
current dividend equals 6.4 percent of Pearson’s share price, the highest yield
among companies in the UK’s benchmark FTSE-100 Index.
BLOOMBERG