(Reuters) - Pearson Plc (PSON.L) said revenue at a key U.S. business fell 5 percent and forecast a possible similar drop next year as the education publisher undergoes a major restructuring to focus on boosting its digital content.
The FTSE 100 company has struggled to grow its U.S. higher education courseware (HECW) as students have moved away from new textbooks for second-hand copies and digital learning materials.
After a few tumultuous years, Pearson had pinned its restructuring hopes on the business, calling it last year the “single biggest opportunity” to gain share through its digital transformation.
But now, Pearson forecast U.S. HECW revenue, which accounts for less than 25 percent of total company revenue, to be flat to down as much as 5 percent for 2019. Liberum analyst Ian Whittaker said it would most likely be at the lower end.
Credit Suisse analysts also said the 5 percent fall in 2018 for the unit was higher than the 3 percent to 4 percent decline that analysts had expected.
Pearson has cut thousands of jobs and sold assets, including the Financial Times and the Economist, to fund a move into ebooks, rental schemes and online courses. It has also expanded into providing online academic programs and supporting virtual schools used by home-schooled pupils or those who want to learn subjects not taught at school.
“We have made good progress in 2018, returning Pearson to underlying profit growth ... There is much still to do,” Chief Executive Officer John Fallon said.
Pearson now expects annual cost savings to be higher than 330 million pounds ($424 million) by the end of 2019. It had previously forecast cutting about 300 million pounds in costs every year between 2017 and 2020.
However, the company expects one-off restructuring costs to rise to around 330 million pounds, ahead of its original plan of 300 million pounds.
Pearson, founded more than 175 years ago as a small building firm in Yorkshire, northern England, forecast adjusted operating profit of 540 million pounds to 545 million pounds for 2018. This was well above analysts’ average consensus of 536 million pounds, according to compiled consensus.
“Pearson’s only managed to hit targets through better than expected cost savings, which are masking weak sales trends in the all-important U.S. market. Unfortunately, there’s no sign this market will turn positive for Pearson this year either,” George Salmon, Equity Analyst at Hargreaves Lansdown.
Total 2018 underlying revenues were down 1 percent year on year.
The company also forecast 2019 adjusted operating profit of 590 million to 640 million pounds against a consensus of 601 million pounds.
Shares were down 5.6 percent at 921.6 pence in morning trade.
Reporting by Arathy S Nair and Tanishaa Nadkar in Bengaluru; Editing by Bernard Orr and David Evans