THE owner of the Financial Times has warned that its annual profits will fall short of City hopes after tough trading conditions in the UK and US hit its education publishing arm.
Pearson, which last year merged its Penguin books division with German-owned Random House, also said higher restructuring costs linked to its push into emerging markers and digital services would hit earnings, sending its shares down sharply.
The group expects to deliver an adjusted operating profit of about £865 million for 2013, down from £936m the previous year and below the £890m pencilled in by City analysts.
Its shares closed down 107p, or 8.2 per cent, at 1,191p following yesterday’s trading update, which analysts at Numis Securities described as “a little disappointing”, although the broker maintained its “hold” rating.
Steve Liechti of Investec said: “Pearson is restructuring aggressively for growth, though this is costly and net expenses are higher than we expected.”
Costs associated with the shake-up totalled about £130m, although the overhaul is on track to deliver savings of £40m and net restructuring charges are forecast to fall to about £50m in the current financial year.
Chief executive John Fallon said: “Our trading and financial performance has been weaker than expected, particularly in North America.
“With trading conditions still challenging in 2014, this further underlines the importance of the work we started in 2013 to reduce our established cost base and redirect our investment towards our biggest future growth opportunities.”
Fallon, who succeeded long-standing boss Marjorie Scardino in January 2013, unveiled an overhaul last year to reorganise the group into three divisions and reduce its education business across some regions in favour of growth markets such as Brazil, China and South Africa.
Pearson, which generates about 60 per cent of its sales in the US, last month struck a £505m deal to buy the largest provider of adult English language schools in Brazil as it seeks to expand its presence in fast-growing economies.
However, its North American education business has suffered amid state budget cutbacks and a drop in the number of students going to college.
“The career college sector, in which we have a strong market position, was particularly weak,” Pearson said.
Penguin Random House, which published the autobiography of former Smiths singer Morrissey and counts the likes of Nick Hornby and Zadie Smith among its authors, had a “solid” fourth-quarter performance but the accounting treatment of the business will knock operating profits by about £29m.
Pearson also said digital subscriptions for its flagship Financial Times newspaper continued to grow strongly, offsetting weak advertising sales and a reduction in print circulation.
The group is due to post its annual results at the end of next month and Fallon said: “Pearson will emerge from this transitional phase as a stronger, faster-growing company, better able to tackle some of the biggest problems in global education.”