Pearson shares nosedive on poor sales performance

Added 17th October 2016

Pearson shares plummeted by 10.2% to 748p Monday morning after the publisher reported a decline in comparable sales over the last nine months.

Pearson shares nosedive on poor sales performance

The shock to the publishing giant’s stock helped drag the FTSE 100 under the 7000 mark yet again. The index had fallen 0.82% at the time of writing, sitting at 6956.

Pearson’s total sales fell 7% in underlying terms and by 10%, if including currency fluctuations.

Sales in North America, which accounted for 63% of Pearson’s revenue in 2015, were noticeably lagging throughout the period, down 9%.

The London-based company attributed its dwindling sales to a drop in demand for traditional courseware throughout its core markets, which was felt most acutely in the US. Pearson’s traditional higher education business model has faced mounting pressure from ecommerce retailers that sell and rent textbooks, in addition to offering digital products, as well as open education resources. 

Lower college enrolment numbers in the US and lower testing revenue in the US and UK also hurt the publisher’s sales, according to the company.

Although in headline terms, Pearson’s total revenue only shrank by 3%, The Share Centre’s investment research analyst Graham Spooner advised interested investors not to downplay the “sluggish” underlying numbers.

“The shares could well be a classic value trap and we would put off potential new investors attracted by the circa 6% yield,” he said. “We therefore recommend Pearson as no more than a weak ‘hold’ at current levels, as management implement changes to the group, aimed at reducing costs and streamlining parts of the business.” 

While sales were trending lower than expected, especially in the case of Pearson’s North American Higher Education courseware unit, chief executive John Fallon reiterated the group’s guidance remained unchanged.

"Our competitive performance remains strong in a tough market,” he said. “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," Fallon remarked.

For one thing, Pearson claims to have made solid progress on the restructuring objectives it set out in a trading update on 21 January, which included around 4000 job cuts and a greater emphasis on investing in digital products and services.

The lower than expected cost base resulting from the group’s restructuring efforts and tightened cost management means Pearson would be on track to achieve an adjusted operating profit between £580m and £620m and adjusted earnings per share of 50p and 55p, Fallon stated.

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