Pearson Forecasts Stagnant 2013 Earnings on Difficult Market

(Updates with previous CEO in third paragraph.)

Feb. 25 (Bloomberg) -- Pearson Plc, the publisher of the Financial Times newspaper, predicted 2013 operating profit will be little changed from last year amid difficult market conditions and as more publishing shifts to online from print.

Adjusted operating profit fell to 936 million pounds ($1.42 billion) in 2012 from 942 million pounds a year earlier, London- based Pearson said in a statement today. The stock fell as much as 6.3 percent, the biggest intraday decline since October 2008.

The company, which generates about 60 percent of sales in the U.S., expects conditions in developed markets and at its publishing businesses to remain “challenging” in 2013. Education budgets remain tight and the company is shifting its model from print sales to digital subscriptions, Pearson said. It was the first set of results since John Fallon succeeded Marjorie Scardino as chief executive officer last month.

“The outlook is likely to be taken very negatively,” Ian Whittaker, an analyst at Liberum Capital, said in a note. “There are also significant restructuring charges.”

The stock was down 5.5 percent at 1,149 pence at 12:05 p.m. in London trading.

Sales rose 4.3 percent to 6.11 billion pounds, missing a 6.18 billion-pound average estimate.

Pearson said it will have about 150 million pounds of restructuring costs in 2013 as it speeds up the shift of its education business to fast-growing economies and digital activities and separates its Penguin book business in preparation to merge it with Bertelsmann AG’s Random House. The restructuring will generate about 100 million pounds of annual cost savings in 2014.

Tough Conditions

The company forecast 2013 operating profit and adjusted earnings per share to be “broadly level” with 2012 before restructuring costs and including Penguin for the full year.

“Trading conditions are tough and structural changes mean many of our traditional publishing activities are under pressure,” Fallon said in today’s statement.

The restructuring will strengthen Pearson’s digital education services and result in job cuts in some operations, Fallon said on a conference call today, declining to specify a figure. Pearson employed more than 48,000 people at the end of 2012, he said.

“The FT is a valued and valuable part of the business,” Fallon said. “There is no process and no conversations about the sale of the FT.”

‘Best Owners’

“We continually ask ourselves if we are the best owners of the business; and we are,” he said.

Pearson has “headroom” for bolt-on acquisitions in 2013 of about 500 million pounds, Fallon said. Purchases will focus on education-related opportunities and those in digital and emerging markets.

The company reported adjusted earnings per share of 84.2 pence, matching the average estimate of analysts surveyed by Bloomberg.

Adjusted operating profit at the FT Group, which publishes the pink Financial Times newspaper, dropped 36 percent to 49 million pounds. Advertising was “generally weak and volatile with poor visibility,” Pearson said, even as the newspaper increased its number of digital subscription by 18 percent to almost 316,000.

Adjusted operating profit at Pearson’s International Education unit rose 10 percent to 216 million pounds. Profit on that basis at the Professional unit dropped 44 percent as the professional training business remained “very weak” and the company faces an impairment charge of 113 million pounds to exit its Pearson in Practice U.K. adult training business.

North American education revenue rose to 2.66 billion pounds from 2.58 billion pounds.

The Penguin-Random House merger, announced in October, is expected to be completed in the second half of 2013, Pearson said.

--Editor: Robert Valpuesta, Thomas Mulier.