Pearson earnings to fall in second year of restructuring

Reuters - UK Focus

By Kate Holton

LONDON, Feb 28 (Reuters) - Britain's Pearson (NYSE: PSO - news) warnedits earnings would fall sharply again in 2014 as the publisherentered the second year of a restructuring sparked by thedeterioration in its main U.S education market.

Pearson, the 170-year-old world leader in education which isunder new leadership after years of good growth, suffered atough 2013 and downgraded its outlook twice.

The weaker-than-expected outlook for this year wiped another700 million pounds off its market value in early Friday trading,to take the fall in the share price since the beginning of theyear to more than 25 percent.

"This is the biggest restructuring in Pearson's history andwe're doing it at a time when our biggest business, NorthAmerica, is facing the most difficult trading conditions it hasin a decade," Chief Executive John Fallon said on Friday.

"It is going to pay off and we will start to see it pay offin 2015."

Pearson shares were down 7.1 percent, the biggest faller onthe FTSE 100 index of blue-chip shares.

"Results from Pearson have kicked investor hopes of quickrecovery into the long grass," said Jonathan Helliwell, analystat Edison Investment Research.

Pearson, which also owns the Financial Times and a 47percent stake in the Random House Penguin book group, for yearsbeat market expectations as it rolled out its education andtesting business around the world. But it was hit by a string ofmanagerial changes and slowing growth in 2013.

Fallon took over from the 16-year veteran Marjorie Scardinolast year and, faced with stalling earnings growth, embarked ona 150 million pound restructuring programme to boost margins andcounter tighter educational budgets.

It has been hit particularly in the United States wherefewer people are enrolling in college courses as the economyrecovers, and where states have put off spending on school booksas they wait for a new Common Core education programme to rollout.

The British group warned in January that its 2013 earningswould be lower than expected due to higher restructuring costsand poor demand for its North America education business in itskey selling period, the fourth quarter.

Prior to Pearson's 2013 results published on Friday, Reutersdata showed that of 25 analysts covering the company, 18recommend investors to either hold or sell its shares.

Pearson's restructuring programme is designed to acceleratethe move from print to digital services, and increase itspresence in fast-growing emerging markets such as China, Braziland India to tap into the rise in spending by a burgeoning andaspirational middle class.

The 2013 results showed that North American education madeup more than 53 percent of the 5.2 billion pounds of groupsales, while international education made up 30 percent.

Adjusted earnings per share fell to 70.1 pence, afterrestructuring charges, from 82.6 pence in 2012. The company saidat current exchange rates, adjusted EPS should be between 62pence and 67 pence this year.

The only bright spot in the numbers was a 7 percent rise inthe dividend, which the group said reflected its confidence thatit would return to growth in 2015.

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