PSO Pearson Plc

--Pearson expects revenue from its key U.S. higher-education business to be flat or fall by up to 5% in 2019, after hitting the low end of guidance last year

--Higher-than-planned cost savings boosted the company's adjusted operating profit in 2018, which is estimated to top analysts' forecasts

--Shares traded 7.2% lower on the back of the news, in their biggest one-day drop since January 2017

By Adria Calatayud

Shares in Pearson PLC (PSON.LN) took a hit Wednesday after the company said its key U.S. higher-education business will remain under pressure this year, although cost-savings boosted adjusted earnings in 2018.

The London-based education publisher expects revenue from U.S. higher education courseware to be flat or fall by up to 5% in 2019, as underlying pressures continue. This would follow a 5% drop in 2018, at the low end of the company's guidance.

Pearson in recent years underwent a major revamp, involving multibillion-dollar asset sales, to become an education pure play. However, continued weakness in the U.S.--as demand for academic textbooks moves online and competition increases--highlights the challenges facing the company's digital transition.

Digital revenue from Pearson's U.S. higher-education courseware grew 2% in 2018 to represent 55% ot its sales, but total underlying revenue was down 1%, the company said. This missed analyst forecasts of a 0.4% decline, according to a consensus provided by the company.

In North America, which accounted for 65% of the group's total sales in 2017, underlying revenue fell 1%, the company said.

Despite the revenue decline, Pearson anticipates adjusted operating profit for 2018 of between 540 million and 545 million pounds ($694.2 million-$700.6 million), ahead of analyst expectations, it said.

The company previously guided for adjusted operating profit of between GBP520 million and GBP560 million. Analysts expected Pearson to report adjusted operating profit of GBP533 million, according to a company-provided consensus.

Pearson said its simplification program is on track to deliver annualized cost savings of around GBP330 million by the end of 2019, ahead of its original plan of GBP300 million.

Liberum analyst Ian Whittaker attributes this to higher-than-planned cost savings and said revenue fell short of expectations dragged by a weak U.S. higher-education performance.

"There is only so much cost cutting you can do to mask the underlying problems facing the business, a lesson the newspapers know well," Mr. Whittaker said.

For 2019, adjusted operating profit is forecast at between GBP590 million and GBP640 million, Pearson said.

Shares at 1038 GMT topped the FTSE 100 fallers trading 7.2% lower at 906.80 pence, making it their biggest one-day percentage drop since January 2017.

Write to Adria Calatayud at adria.calatayudvaello@dowjones.com

(END) Dow Jones Newswires

January 16, 2019 06:39 ET (11:39 GMT)

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