Pearson pencils in at least 8% profit growth for 2019

Pearson expects full-year profits to come in just above the middle of its target range and guided to growth of 8-18% for 2019.

The education and learning specialist reported said adjusted operating profit for 2018 would come in at around £540-545m, narrowing its range from the prior £520-560m. This feeds through to earnings per share of 70-71p.

Revenues were down 1% as a 5% decline in US high education and school courseware was partly offset by growth of 1% in the rest of the business.

The digital reset of the business and focus on structural growth opportunities made a contribution to sales and profits. Higher education sales grew 2%, representing 55% of sales, of which direct-to-consumer sales swelled 8% to 23%, while there was good growth in global course registrations and revenue via Online Program Management, the Connections Academy virtual schools business, and in professional certification revenues.

Cost efficiencies also progressed ahead of plan, with incremental cost savings of around £130m and restructuring costs1 of around £100m.

For 2019, management expect a similar pattern, guiding to adjusted operating profit of £590-640m, with pressure to continue on US higher education coursework revenues but sales growth from the rest of the business and progress in each of the structural growth opportunities. Adjusted earnings per share are seen in a range of 56.5-62p, with a net interest charge of around £30m and a tax rate of 21%.

Helping profits will be annualised cost savings in excess of £330m by the end of 2019, though one-off restructuring costs will rise to around £330m. This compares to the original plan of £300m in savings and costs.

Net debt was more than halved to £200m by the end of December, from £432m a year before but could be slashed even further if the US K12 Courseware business is ever sold.

Pearson shares, having gained more than a third last year, fell more than 5% to 926.2p in early trading on Wednesday.

Broker Shore Capital said the statement adds to the previous impression that "although trading remains mixed, its underlying businesses are stabilising/beginning to gain traction following a tumultuous few years".

Analysts noted that the recent price equates to a 2018 forecast P/E ratio and dividend yield of 19.1x and 2.0%, moving to 16.7x and 2.4% for 2019.