Pearson (PSON) profit warning sends shares falling

US market is being blamed for the weaker trading with higher education courseware sales dropping this season.

Article updated: 26 September 2019 11:00am Author: Graham Spooner

  • Shares in the educational publisher slump by almost 16% in early trading, as it issues seventh profit warning since 2014.
  • Group blames poor performance on consumers turning their back on printed material.
  • We continue to recommend the shares as no more than a ‘Hold’ for investors willing to accept a medium level of risk.

Long-term followers of the educational group will be thinking 'here we go again' as the Group came out with a profit warning this morning. Investors may need some of the Group’s educational tools to count up how many times this has happened but this is likely to be the seventh time since 2014 that profit expectations have been lowered.

Management is blaming weaker than expected trading in its main US market, where demand for higher education courseware during the key selling season has been lower than expected. Operating profit is now expected to be at the lower end of previous guidance range of £590 - £640 million. Investors will be unsettled by lower expectations for US Higher Education Courseware revenue which was expected to fall by 0% to 5% but is now forecast to decline by 8% to 12%.

Our view on Pearson - Hold

The share price has slumped by 16% in early trading, close to an 18-month low and today’s update suggests cost cutting is helping obscure the slowdown in US education and that further restructuring may be needed. We continue to recommend the shares as a ‘Hold’ for investors willing to accept a medium level of risk.

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Graham Spooner

Investment Research Analyst

Graham started out as a fully authorised dealer on the Stock Exchange trading floor and for various banks, before becoming an FSA-approved investment adviser. Now a respected voice in the media, Graham’s share tips and comments on the markets are frequently sought by the national press.