Pearson expect a 15% decline in 2020 operating profit

Pearson (LON:PSON) have told shareholders that they are expecting up to a 15% decline in operating profit for 2020.

 The firm alluded to the changing preference of learners as one of the reasons for the gloomy forecast, as shares declined.

Shares in Pearson trade at 572p (-7.50%). 16/1/20 12:24BST.

Pearson updated the market back in December, alluding to the sale of Penguin Random House for $675 million to Bertelsmann SE & Co KGaA, the deal valued Penguin at $3.67 million.

Looking at its 2019 figures, Pearson reported underlying revenue remained flat whereas adjusted operating profit was £590 million, within the guidance range, and up 8.1% from £546 million in 2018, which was something positive to report within the update.

US Higher Education Courseware revenue declined by 12%, though there was “modest” growth in digital revenue, this followed a sway of print products to digital formats as campus bookstores told Pearson of the changes towards eBooks from its physical counterpart.

Looking forward to 2020, Pearson expects to deliver adjusted operating profit between £500 million to £580 million, including the 25% stake in Penguin Random House.

Pearson added that they expect trends seen in 2019 in US Higher Education Courseware to continue with heavy declines in print partially offset by modest growth in digital as more products are added to the GLP.

Notably, incremental restructuring benefits of £60m as plan will come to an end.

John Fallon, Chief Executive said:

“We have secured flat revenue this year and delivered operating profit within the guidance range, with much weaker sales in US Higher Education Courseware offset by a strong performance in the broader 76% of Pearson.

“Pearson is now a simpler, more efficient company, with strong financial foundations. This enables us to continue to invest in digital innovation and platform-based products. The future of learning will be increasingly digital and consumer defined. Experience, outcomes and affordability will all matter and while there is still much to do we are well placed to benefit from these trends to achieve future, sustainable growth.”

Pearson see different story from one year ago

Just under a year ago, in February the firm reported that its profits grew 8% for the year, despite a fall in sales, as cost-saving initiatives took effect.

The educational publisher said adjusted operating profit for the year to 31 December 2018 was £546 million, despite underlying revenue declining 1% on a year-on-year basis.

The fall in revenue was attributed too “portfolio changes”. The firm is in the midst of a restructuring its business, as it turns it focus more towards digital publishing.

The firm also said it expects adjusted operating profits of between £590 million and £640 million in 2019.

Retailer – The Works

Interestingly, The Works (LON:WRKS) saw their shares spike this morning as the firm saw record trading over the Christmas period.

The Works is a book retailer and has seen a strong period of trading, which is interesting looking at the update from Pearson.

The stationary retailer said to shareholders that like for like sales in the 11 weeks period rose by 1.5%, notably this showed an impressive period of trading across Christmas as the period ended on January 13.

For its first-half, the six months to October 27, revenue climbed by 5.4% year-on-year to £96.4 million from £91.5 million. On a like-for-like basis however, sales were 3.6% lower during the period.

Its pretax loss narrowed to £8.5 million from £9.1 million last year which has been reflected in todays share price surge.

The Works also noted that 33 new stores were opened and five were closed, bringing the total estate to 525 stores as at 27 October 2019.  Two stores were relocated during the Period and a further net 13 stores were added following the period end.

It seems that Pearson may have to evaluate the shift to eBooks over their traditional counterpart if they are to see higher volumes of sales, however the firm has demonstrated its ability to bounce back in the past.

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