Pearson to cut 4,000 jobs in latest restructuring plan

Britain's Pearson said it would cut 10 percent of its workforce and restructure once again to tackle a storm it is facing in markets from North America to South Africa after focusing on educational publishing.

Shares in the former owner of the Financial Times, down more than half since last March, jumped more than 16 percent after it pledged to maintain its dividend, despite forecasting sharp profit falls in 2015 and 2016 before earnings recover in 2018.

Chief Executive John Fallon said problems in its markets, such as fewer people in the United States going to college, had been more pronounced and had lasted longer than expected.

John Fallon, chief executive officer of Pearson Plc
Chris Ratcliffe | Bloomberg | Getty Images
John Fallon, chief executive officer of Pearson Plc

"We are taking immediate and decisive action to simplify the company, integrate operations and cut costs, all with the aim of getting Pearson growing again," he told reporters on Thursday, setting out plans for 4,000 job cuts.

The plan could be the last throw of the dice for Fallon, who has issued a series of profit warnings since he took over in 2013, in contrast to the steady growth delivered by his predecessor Marjorie Scardino during her 16 years in charge.

"I am very confident that we've made the right strategic calls and that will show so over time," said Fallon.

Pearson, which sold the Financial Times and its stake in The Economist last year to concentrate on education, has been wrong-footed by a strong recovery in the U.S. jobs market, which has reduced the number of mature students going to college.

The group has also found itself at the mercy of politics, as governments in Britain and the U.S. modified student testing, while educational spending in countries such as Brazil and South Africa has proved hard to predict.

'A' for effort

Fallon said he was confident that U.S. college enrollments would stabilize and changes in British testing would ease by the end of 2017.

He said based on realistic assumptions, adjusted operating profit would rise to more than 800 million pounds in 2018, higher than analysts expected, after dipping to between 580 million and 620 million in 2016.

The company is spending 320 million pounds in 2016 on the restructuring.

Pearson's shares, which on Wednesday hit their lowest level since July 2009, bounced 16 percent to 762 pence by 1016 GMT, as investors welcomed decisive action.

Analyst Roddy Davidson at Shore Capital said it was disappointing to see further restructuring costs and little if any improvement in underlying markets, but he was encouraged that Pearson had stepped up its efforts to meet the challenges.

"The market will also be relieved by its decision to maintain dividends at 2015's level," he said.

In a bid to keep investors on side, Pearson said it would not cut its dividend, even though the 52 pence payout would be barely covered by earnings per share forecast to be 50-55 pence in 2016 before the costs of restructuring.

Chief Financial Officer Coram Williams said the dividend was underpinned by confidence that earnings would bounce back in 2018, and in the short term by a balance sheet bolstered by 1.1 billion pounds of proceeds from the FT and Economist sales.

Pearson said the restructuring, the second major program under Fallon, would involved combining divisions such as its school testing and professional testing divisions in North America to reduce back office costs.