July 26, 2019 / 6:28 AM / a month ago

Pearson revival on track as shift to digital pays off

LONDON (Reuters) - British education firm Pearson (PSON.L) said on Friday it had traded well in the first half of 2019 and would stick to its outlook for an improving sales picture, as its strategy to shift away from textbooks towards digital learning starts to pay off.

FILE PHOTO: The company logo is displayed outside the Pearson offices in London, Britain August 4, 2017. REUTERS/Neil Hall

Pearson posted underlying growth in all divisions, helped by good enrolment growth in its Online Program Management (OPM) business, and reiterated its forecast that revenue would stabilise this year before rising in 2020 and beyond.

It also raised its adjusted earnings per share (EPS) guidance. Shares in Pearson, the world’s biggest education company, rose 5.3%, set for its biggest single session rise in over a year, as analysts welcomed the results.

“We are entering the next phase in the transformation of the company, and that’s a transition from renewal and recovery... to sustainable growth.” Chief Executive John Fallon told reporters on a call.

“It’s that shift in the underlying nature of the business that makes us so confident that you will see revenues first stabilise and then start to grow again.”

Pearson has posted more than five years of declines in sales but in February hailed a tipping point for a company that has been hammered by the sudden shift to digital learning.

It has been forced to cut thousands of jobs to shrink its cost base while investing in new digital platforms, but now expects its investments in that new technology to help the group to produce top-line growth.

The British firm upgraded its adjusted EPS guidance to be between 57.5 pence and 63.0 pence, reflecting improvements in the finance charge and taxation. Previously it had expected adjusted EPS of 55.5p to 61.0p.

Pearson, which has in recent years sold assets including the Financial Times and a 50% stake in the Economist, said a strong performance in key growth areas such as OPM was more than offsetting expected declines in its U.S. higher education courseware and U.S. student assessment units.

Underlying revenue was up 2%, and analysts at Citi said the positive growth in every division was the first time it had managed such a result since the divisional structure was announced in 2014.

“Bears will argue that the group is not out of the woods on U.S. higher ed yet, which is true,” the analysts said.

“But with growth elsewhere in the portfolio and an increasingly strong balance sheet, this is not the deep, dark forest it once was and it is certainly not getting worse.”

Reporting by Alistair Smout; Editing by Paul Sandle and Edmund Blair

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