Penguin Random House Merger Sets Back Profits At Pearson plc

Pearson plc (LON:PSON)’s restructuring programme remains on track.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares in Pearson (LSE: PSON) (NYSE: PSO.US) dipped by 2% in early trade, following the release of its nine-month interim statement.

There was nothing shocking within the report; indeed, it was broadly resiliant, but the market was maybe hoping for more of the growth that it announced it was seeing back in July, which sparked a resurgence in the share price. Expectations have since been tempered, with Pearson having only risen around 9% in the last 12 months compared to the FTSE 100’s 17%+.

Underlying sales grew by 2% (4% at constant exchange rates) thanks to decent international performances, particularly in emerging markets, while management reiterated its full-year guidance of adjusted EPS to be broadly level 2012’s 82.6p.

Adjusted operating profit for 2013 (before restructuring charges) is expected to be lower than in 2012 due to the “accounting impact of the Penguin Random House transaction and weak market conditions for college textbooks in North American Education”. Management went on to explain:

“Following completion of the Penguin Random House merger on 1 July 2013, we now consolidate our share of Penguin Random House’s post-tax profit into Pearson’s operating profit. (Previously, Penguin’s operating profit was reported before tax.) This accounting treatment reduces Pearson’s operating profit by approximately £25m in 2013, but at the EPS level we gain an equivalent benefit through our tax charge.”

Commenting on Pearson’s restructuring programme, chief executive John Fallon said:

“Market conditions remain strong in digital, services and emerging markets, but are more challenging in some of our largest textbook publishing markets. This reinforces the importance of our strategy of accelerated change, so that we can shift more capital and talent more quickly towards these significant growth opportunities. The pace of this restructuring is increasing through the second half of this year and will continue into the first half of 2014. Inevitably, this restructuring carries some short term operational risks, but, overall, it is going very well – and we are confident of the benefits it will bring.” 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Sam does not own shares in Pearson.

More on Company Comment

Hand of person putting wood cube block with word VALUE on wooden table
Company Comment

Value has been building behind the Diageo share price

Despite the business growing, the Diageo share price first reached its current level just over 19 months ago and hasn't…

Read more »

Older couple walking in park
Investing Articles

5 stocks to buy for high and rising dividend income

I can see a host of shares to buy on the FTSE 100 offering me exceptional levels of income. Here…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

I don’t care if FTSE 100 shares fall further, I’m buying them today

I'm happy to go shopping for FTSE 100 shares today, even though I accept that they could have further to…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

Rolls-Royce shares are down 18% in a month and I’m finally going to buy them

Investors who bought Rolls-Royce shares have been repeatedly disappointed, but I'm willing to take a chance on them before they…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

How I’d invest £10k in a Stocks and Shares ISA today

Now looks like a good time to buy cheap FTSE 100 shares inside a Stocks and Shares ISA. These are…

Read more »

Black father holding daughter in a field of cows
Investing Articles

Today’s financial crisis is the perfect moment to buy cheap shares

I'm building a portfolio of FTSE 100 stocks by purchasing cheap shares whenever I see an opportunity. There's a good…

Read more »

Long-term vs short-term investing concept on a staircase
Investing Articles

I’d buy Tesco shares in October to bag their 5.4% yield 

Tesco shares have fallen lately but I think this makes them attractively valued for a dividend stock I would aim…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

I would do anything to hold Diageo in my portfolio (but I won’t do that)

Diageo is one of my favourite stocks on the entire FTSE 100 and I'd love to hold it, but one…

Read more »