World's Largest Education Company Crashes After Dire Warning, Warns Of "Unprecedented" Business Decline

Tyler Durden's picture

British education group, and the world's largest education company, Pearson PLC lost a quarter of its market cap in an instant this morning after it issued a dire warning about the state of the textbook business, cut profit forecast, and warned of an "unprecedented" decline in its North American business. It also put its stake in the iconic Penguin Random House book business for sale in a bid to raise cash, not long after selling the Financial Times to the Nikkei.

In an unscheduled update ahead of its full-year results in March, the former owner of the Financial Times said it was revising down its prior operating profit goal for 2017 and rebasing its dividend this year after a sharp slump in an arm of its American business. Pearson said its North American courseware market was “much weaker than expected”, with net revenues falling 30 per cent in the fourth quarter, taking the overall yearly decline to 18 per cent. Operating profit in 2017 will be 570 million pounds to 630 million pounds, the London-based company said in a statement, below the average analyst estimate compiled by Bloomberg of 702.9 million pounds. The world’s largest education company withdrew its profit goal for 2018 after sales of materials for U.S. higher education dropped 30 percent in the fourth quarter.

“Whereas we had previously anticipated a broadly stable North American higher education courseware market in 2017, we now assume that many of these downward pressures will continue”, the company said. Furthermore, while Pearson said it expected 2016 operating profit in line with guidance, it scrapped its 2018 profit goal.

Chief executive John Fallon said Pearson was taking “more radical action to accelerate our shift to digital models, and to keep reshaping our business”.

“The education sector is going through an unprecedented period of change and volatility. We have already taken significant steps on restructuring, reducing our cost base by £375m last year”, said Mr Fallon.

The stunned market reacted quickly, and the company lost about a quarter of its market cap in minutes at the start of Wednesday trading. The shares were then halted on volatility after continuing their decline as analysts peppered executives with questions about their business and the industry on a conference call that extended past an hour. The company’s enrollment projections were too aggressive, Chief Financial Officer Coram Williams said on a conference call. Pearson sank to 585.5 pence in early trading in London, cutting the company’s market value to 4.81 billion pounds ($5.9 billion)

Pearson's sudden capitulation contrasts with months of optimistic statements CEO John Fallon about the challenges Pearson faces in the U.S., where college enrollments and its testing business are down, and textbook sales unexpectedly declined, Bloomberg reports.

“It’s a difficult time for Pearson,” Fallon said on the call. The company is seeking to build a more sustainable and growing digital business, he said. “We’ll manage our balance sheet so we can sustain the company through this challenging transition.”

Despite record amount of student loans in the US, fewer older students are enrolling, community college admissions also are dropping, and more students are renting textbooks.

The company will also issue an exit notice over its 47% stake in publisher Random House to JV Bertelsmann, Europe’s largest media group by sales, “with a view to selling our stake or recapitalising the business and extracting a dividend”. The Penguin stake may raise as much as 1.2 billion pounds, according to Ian Whittaker, an analyst at Liberum Capital. Pearson will use it to strengthen its balance sheet and return excess capital to shareholders, the company said.

The dividend, which amounted to 52 pence a share for 2016, will be cut beginning this year to reflect the lower earnings guidance. The current dividend equals 6.4 percent of Pearson’s share price, the highest yield among companies in the U.K.’s benchmark FTSE-100 Index.

As Bloomberg adds, analysts have been questioning the health of Pearson’s education business since last year. Neil Campling, an analyst at Northern Trust Securities, called the announcement “the warning we’ve been expecting,” in a note on Wednesday. “The higher education business declined further and faster than the company expected in 2016 although in light of the plethora of negative data points we have highlighted throughout the year we are not surprised,” Campling wrote. “The North American higher-education courseware market essentially collapsed in the critical fourth-quarter back-to-school season.”

Pearson combined Penguin with Bertelsmann’s Random House in 2013, leaving the British company owning just under half of the venture, which publishes books from writers including John Grisham, Ken Follett and George R. R. Martin. In 2015, it generated revenue of 3.7 billion euros ($3.95 billion) and operating earnings before interest, taxes, depreciation and amortization of 557 million euros.

 

Random House, the world’s largest book publisher. The German company is open to increasing its stake in the venture “provided the terms are fair,” CEO Thomas Rabe said in a statement. “Strategically this would not only strengthen one of our most important content businesses, it would also once further strengthen our presence in the United States, our second largest market,” Rabe said.

Pearson gets almost all its profit from education after already selling the Financial Times and its half of the Economist Group. The company announced a reorganization last year as it seeks to address sluggish demand in its main business.

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wisefool's picture

 Internets, moon missions, 911, LOL!

JamesBond's picture

Soon to be law making it ilegal to rent a textbook or buy a textook other than directly from Pearson; you don't really own it afterall...

 

jb

CRM114's picture

They've been trying to do this for a while. They started by providing free CDs with extra material, then gradually tried to shift it to individually licenced software which was integral to the course, so it wouldn't work without repeat payment for the next student if the textbook was resold.

Arnold's picture

Once the history books are re written again,

they'll be farting through silk .

directaction's picture

They charge $250 for $10 textbooks and they're going broke?

Kprime's picture

LMAO!!!!!!  WHAAAT?? 1.4 TRILLION DOLLARS OF STUDENT DEBT WILL NOT BE ABLE TO GROW AS EXPECTED??

do these dumb ass muther fuckers running .gov really have zero brains?  why do they and their business masters continue to think eternal growth through eternal debt is likely or even possible?

How can MOAR of everything, in ever increasing amounts, be considered the path to the future?

it doesn't take a grade school education to figure out, it can't and it won't.

P.S. neither does it take a grade school education to get an EBT card. While I am shopping on Amazon with my new EBT card, I won't be looking for textbooks. But, keep it on the low down, I'm workin on my baby daddy degree.

P.P.S. that student loan I got..I didndonuffin, ain't buyin no textbooks needer, startin me a drug bidness.

Scuba Steve's picture

Haha ... lmfao ... a little popcorn, a few brewskies and some fine ZHing.

Thank You for a few chuckles. Nice.

RealityCheque's picture

Translation: "Our disgusting cartel is being destroyed by the pirate kids on the Internet"

bigkahuna's picture

This scam should have come apart in the 90s. Instead - it only got worse. The textbook scam has never been worse than today. I have wondered when this parasite would kill the host. Perhaps this is a sign that the host has rolled over? Because that is what it will take to stop this scam.

I talked with some traditional "college" students. They actually defended the textbooks to the tune of "it is a good business model". Whatever people!!!

NoPension's picture

We can e books for 99cents...and these fucking parasites charge $250 for a textbook.

The whole "higher education " racket is a fucking scam on society.

Hell...k-12 is a fucking joke, too. Organized babysitting....the babysitters getting top pay and .gov pensions.

bigkahuna's picture

On a side note - the k-12 textbook scam looks like a superintendant insisting on a new reading/math/etc program involving all new books costing the taxpayers millions of dollars in his/her district. Does elementary reading and math change that much any year, or any decade? NO!! Replace perfectly good books and hit the taxpayers hard - taking a personal kick back. These people are as nasty as they get.

NoPension's picture

It's 2016.

I love to read. LOVE it.

Rarely need to pick up a book anymore.

Kids don't kid iPads or ereaders?

wisefool's picture

And that brings me to my final and most important point. Which is why, at least in my opinion, the NEA and its affiliates are such effective advocates. Despite what some among us would like to believe, it is not because our creative ideas, it is not because of the merit of our positions, it is not because we care about children, it is not because we have a vision for a great public school for every child. It is because we have power. And we have power because there are more than 3.2 million people are willing to pay us hundreds of millions in dollars dues each year because they believe we are the unions that can most effectively represent them. The unions that can protect their rights and interests as education employees.

<standing ovation>

This is not to say the concern of NEA and its affiliates with closing achievement gaps, reducing drop out rates, Improving teacher quality and the like are unimportant or inappropriate. To the contrary, these are the goals that guide the work we do. But they need not, and must not be acheived at the expense of due process, employee rights and collective bargaining. That is simply too high a price to pay.

Video of Speech Here:

https://www.youtube.com/watch?v=baM8N24K8kE

I had some of the best teachers in the world. Especially my STEM teachers. But that was in the pre 911 physics days. For that reason, I don't know who has it worse. Us old people or the kids learning the new math ...

 

peippe's picture

you weren't supposed to figure that out.

don't you want the next generation to be smarter than you?

why do you hate progress?

don't you understand the latest textboks are going to fix this world?  

hee hee....

tyrone's picture

fantastic news!  Its what they richly deserve for bowing to the liberal educators in DC and rewriting American history for children.

 

buzzsaw99's picture

burn your global warming textbooks to keep warm bitchez.

Hubbs's picture

A beautiful waterfall.

CRM114's picture

I know a bit about education. I've picked quite a few textbooks from grade 5 to College.

Pearson (and their rivals) have worked on the following model.

Get education authorities to write a prescriptive curriculum.

Push for teacher accountability through (effectively) exam grades only

Write highly focused textbooks aimed at fitting the curriculum and exam grades, not knowledge.

Get education authorities to keep changing the curriculum = sell more textbooks.

Essentially, they've been browbeating teachers with "Buy our textbooks and keep your job".

A teacher,using a Pearson textbook,can thus start the class with "It's 17 March, so turn to page 234, read the section, and do the questions at the end."

Which is great if you are a Phys Ed teacher in front of a math class, as is so common. Because you can now spend the rest of the lesson planning that evening's special teams training.

The textbooks themselves are pretty cr@p. They usually contain a fair selection of technical errors and are boring beyond belief.

Well, the game is up.  

Partly because the educational authorities have started listening to staff and aren't changing the curriculum.

Partly because those with some curriculum authority have deliberately made the last textbook still useful

Partly because education authorities that "throw money around to get exam results" have run out of money

Partly because some courses are now avoiding textbooks altogether and using the internet.

Here's the thing though.Nobody in education likes Pearson anymore, and now they don't have to use them, they won't. Hence this rapid collapse which will only get worse.

NoPension's picture

......teachers...using the internet?

How 20th century.

Global Hunter's picture

+1 you obviously know more about this subject than I do.  I took a stab at it below before reading your post. 

SubjectivObject's picture

Now this is a right proper post.

arrowrod's picture

Cash cow, gored.

Is Wiley next? (I know all of you fuckers who went to college, remember Wiley.)

Overdrawn's picture

How can people claim to be educated if they are not reading?  That mean's that students are just accepting & recalling the opinions and bias of their teachers without any independent input or critical thinking.

truthalwayswinsout's picture

Here are the facts. Just 12 years ago casebooks for law school cost only $45. Today they cost $230.  This despite the fact that they print them on Cameron presses in Mexico where it is cheaper.

The same thing went on with textbooks used in all courses.

I know the response students had in the high tech education fields such as software etc was to not buy text books. No one buys the textbooks anymore for those courses because they are tech and you have to learn the tech on your own. Most of what they need is freely available on the internet.

Hence you are now seeing the results of the great education crash. Make no mistake this is just the beginning and it will gather steam in the same manner the elites at Harvard put the rust belt into existence. It is now their turn.

Eventually, there will be no more colleges or universities as the education will be free on the web and to get a degree you only have to take 40 courses and pass the ball busting exams for each course. The cost will be from $100 to $250 per course to take the exam. All students will be required to work part time and many companies will sponsor versions of degrees that are tougher than the regular degree such as a the GE BSEE or the Microsoft CS degree. Please excuse my last choice but it is early and I just don't think right without a dose of fat, sugar and caffeine from our good friend and Half Breed Muslim Nigger Lover Warren Buffet.

 

NoPension's picture

Here's the thing... technology changes so fast....a teacher out of the system becomes useless quick. And if they need to "update" their skills, just send the students to the "update" location.
Point is....technology is making the teacher in a brick building...obsolete.

Kefeer's picture

I worked for the largest publisher of text books in the US; it was always a scam.  Books rewritten every 2-4 years with minor changes in order to sell more books.  Professors are part of the scam as they would receive kickbacks for textbook adoptions.  Some professors would reject new adoptions in favor of keeping the costs down, but as the used books became scarce, then they eventually are forced to adopt.

 

For the most part, there is no need for a campus and almost everything, in many cases, can be done online.  Real education is only that which one learns that applies to the profession that one enters.  Many degrees are just part of the "gate keeper" system that holds back many people.  The first two years of college is almost always a scam, since the core classes are things already taken before going to college.  However, those classes capture the highest percentage of $$$$.

ronaldwilsonreagan's picture

Burn all the text books that say the earth is not the center of the universe. Plus any book proclaiming th world is anything but Flat. Columbus sailed off the edge of the earth never to be seen again. Fuck it just burn everything but the Bible. Gravity is the weight of gods love raining down on us.

I am Jobe's picture

Isn't Spring Break, Getting laid with Football Playes and Basketball players considered education? WhoreStudies major in the USSA

Global Hunter's picture

Trump's election victory means that education departments are putting on hold their usual practice of purchasing textbooks that are designed to normalize homosexuality, lesbianism and trannies along with white male priviledge and all that shit?

Kefeer's picture

Good - die!  Rip-offs!!

Last of the Middle Class's picture

They should move into downloadable coloring books for the safe space snowflake crowd. Most of the charges will be on daddy's debit so losses would be minimal.

Xando's picture

I'm not surprised. I've noticed a trend that schools are using textbooks less and less. "Enlightened" teachers, ahem, are rolling their own coursework more and more. That's not a good thing, it's a horrible thing from what I've seen.

CRM114's picture

It's a good thing with great teachers writing their own textbooks,if they have the time to do it. It's a poor thing otherwise.

UmbilicalMosqueSweeper's picture

The Department of Indoctrination should be scrapped.

UnschooledAustrianEconomist's picture

Good books are valid for generations and last generations. Bad books are left aside on the shelves when money gets scarce.

Who could have thought....

hotrod's picture

Let's hope that ALL who are part of the Education Financial RAPE JOB perpetrated on our children start feeling the pain.  There is NO REASON why education costs have risen at the pace of Health Care costs and average over 110,000 for 4 years.  The Text book racket with all it's pick pocketing methods should end.  REMEMBER CAMERA FILM, well digital ended that entire business.

CRM114's picture

I'd like to say something about good teachers.

Firstly, many are leaving the profession, the ones remaining don't have the time to do the job well, and new ones aren't joining.

They don't need textbooks,or computers or the internet. They help. A bit. But they don't need them.

They just need some attentive kids who will behave, and some shelter.

And most of all, they need education authorities to get off their backs.

If every educational authority were shut down tomorrow, and principals were allowed to hire and fire - staff and students - education would improve markedly.

Most people don't see the value in teachers because they've never had a good one with the time to do the job properly. They've never heard a spontaneous collective groan from a class when the teacher says "Well, we have to finish now because it's break time." Good education is really good, for everybody. Pity so few have seen it.

And textbooks and internet videos, even ones by good teachers, do not replace good teachers.

 

Paul John Smith's picture

a) public schools suck

b) they care SO MUCH for their students that they violate FERPA all the time, and transmit student documents "in the clear" (I know this for a fact)

c) Please stop whining.

CRM114's picture

a)I've never taught in a US public school.

It certainly looks like a lot of them suck.

b) You make my point about educational authorities.

c) I'm not whining, I'm telling you what you are missing. I'm not begging to come back - I'm telling you that you have to change education drastically, then beg me to come back.

angry_dad's picture
angry_dad (not verified) CRM114 Jan 18, 2017 11:42 AM

"a)I've never taught in a US public school."

-----------------------------------------------------

that point is obvious, get out of the way

--------------better idea-----------------

get a job as a sub for a week and get back to me with your experiences

Kefeer's picture

They are helping to indoctrinate the "human secularist" agenda, which is based on the dumbing-down of kids.  The focus is on testing.  No biblical morality is being taught  and the end result is we have gone in the top 5 in math, science, and reading to 21st and beyond since the inception of the "Department of Education" and if one looks at the Supreme Court decisions in relation to biblical morality taught in schools and the inception of humanistic ideas, there is a direct correlation in the decline.

CRM114's picture

Correlation is not causation. Both morality education and educational performance are declining for the same reason, which is that the Government and its attendant bureaucracy are increasing immoral. Whether that's Biblical morality, some other religion, or humanist morality does not in my experience make much difference. But you have to have morality, whatever the source.

MrSteve's picture

and that source now is "Character Counts" banners....yeahhh ! !

CRM114's picture

I just googled that:

"CHARACTER COUNTS! becomes infused seamlessly into the DNA of your school or organizational climate."

Pass the bucket, I think I'm gonna hurl!

 

skunzie's picture

I wanted to be the nominee to head up the Dept. of Education.  My first order would be the immediate and complete dissolution of the agency and all grants given out by it.  Every employee would be fired and all funds returned to The Donald to help start reducing our federal deficits.  Each state should be free to determine if an educated populace is important to their economic and social well-being.  If not, don't spend money on it, but also understand the government teat is closed for business as well.

Such dissolution of the Dept of Ed would also get rid of the need for the NEA, a truly useless union with no purpose other than to suck dues from teacher's pay.

angry_dad's picture
angry_dad (not verified) CRM114 Jan 18, 2017 11:39 AM

"If every educational authority were shut down tomorrow, and principals were allowed to hire and fire - staff and students - education would improve markedly"

------------------------------100% WRONG-------------------------

If most principals were fired and replaaced by managers who demanded law and order, the us schools would be a paradise

The social engineering experiments of the last 30 years have been a complete failure and the drive to save the bottom 5% at the expense of the 95% has been proven to be the worst decision ever.

CRM114's picture

The principals are constrained by the education authorities,and are unable to enforce law and order.

In most cases, the problem has been to aim all the policies at improving those just below average, not the bottom5%. And sacrificing the others.

 

So,we'll forgive all the bold since you admit to being angry dad, but it would be better if you grasped exactly what the problems are,so you may better direct your anger.