Pearson PLC (NYSE: PSO) stock slightly recovers post weakness

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Pearson PLC (NYSE: PSO) stock fell over 15.4% in the last week (Source: finviz) after the company issued a profit warning after seeing subdued trading in US higher education courseware business (25% of revenue) and now projects the adjusted operating profit to be at the bottom of the guidance range of £590mln-£640mln. The revenue at its U.S. higher-education courseware segment, have declined by about 10% for the first nine months of the year. PSO now expects revenue from that business to decline by 8% to 12% in 2019, compared to the previous guidance for a fall of up to 5%. Adjusted earnings per share are projected to be at the low end of its range of 57.5 pence to 63.0 pence. Post the weakness, the stock slightly recovered over 1.1% on 30th September, 2019 (as of 12:03 pm GMT-4; Source: Google finance)

Moreover, for the nine months, the company anticipates the group underlying revenue to be broadly flat with Core markets up 5%, Growth up 3% and North America down 3%. The businesses that have generated 75% of the company’s revenue are growing in aggregate by about 3%.

The continued strong growth in Online Program Management (OPM), Connections Academy, the K12 virtual schools business, Pearson Test of English Academic (PTE Academic) and Professional Certification are on back of the incremental investment the company had made in these businesses over the past two years.

Additionally, the underlying pressures from lower college enrolments and use of Open Educational Resources (OER) are all performing as per the company’s expectation. However, the weaker than expected trading will be on the back of the key selling season that had seen a significant industry wide acceleration of print attrition as channel partners and students turn away from print products more rapidly than expected.

Modest adoption share loss likely caused by the delivery issues driven by the implementation of the new Enterprise Resource Programme (ERP) in H2 last year as well as the sales force re-organisation. PSO expect to re-gain this share following the roll out of the next wave of digital products on the Global Learning Platform which launched in September, along with a sales force which is strategically aligned to the customer base.

Digital revenues are up slightly but registrations fell slightly due to a continuation of the trends the company had identified at half year with greater than expected pressure in Developmental Mathematics, the strategic retirement and deprioritisation of long tail products, and some impact from due to loss of market share.

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