Pearson sales struggle as education proves tough test

Underlying sales remained underwhelming at Pearson in the third quarter but the pound's weakness is likely to put a sheen on full year numbers.

Although underlying profit guidance for 2016 was held steady, the educational publisher has completed around 90% of its redundancies in order to reap £250m of cost savings next year and hit it 2018 profit guidance of £800m.

Sales were down 7% at the underlying level in the nine months to the end of September, unchanged from the first half of the year.

The main reason is the decline in revenue from exam assessments in the US and UK, with new added declines in North American Higher Education courseware due to a further inventory correction by retailers in July and August, though this has eased off since.

Group sales in headline terms were down just 3% due to the dollar-sterling exchange rate, which Pearson said could now push earnings per share 4.5p higher for the calendar year if exchange rates remains near where they are.

"Our competitive performance remains strong in a tough market," said chief executive John Fallon. "We have achieved more than 90% of the growth and simplification restructuring programme we announced in January."

"While market conditions continue to be challenging, particularly in higher education, thanks to tight cost management we are on track to deliver our guidance this year, and to achieve our long term growth goal."

Broker Numis said the underlying numbers were "a little softer" than it had modelled, though the recent currency moves had offset this, leaving its earnings forecasts unchanged.

Analyst George Salmon at Hargreaves Lansdown noted that after selling off the Economist and 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", with little in today’s update to suggest that the tide is changing.

He added: "Costs are being taken out as the group restructures, and with the proceeds from its recent disposals in the bank, Pearson say the dividend is safe for the time being. For the group to avoid a cut in the longer-term, however, things will need to improve."

Shares in Pearson were down almost 10% to 751p as 1100 BST approached on Monday morning.