UPDATE 2-Pearson warns of another tough year after earnings fall
* Cuts forecast for 2012 results
* Weak government spending hits education
* Shares down 3 percent
LONDON, Jan 21 (Reuters) - British education and media group Pearson warned it expected tough market conditions to continue in 2013 after weak trading in its key fourth-quarter selling season hit earnings last year.
The Financial Times newspaper and Penguin books publisher said it now expects to report on Feb. 25 adjusted earnings per share of around 84 pence for 2012, below the 84.9 pence it had said it expected in October, due to restrained government funding on education in developed markets and weak advertising.
The result had already expected to be down on the previous year's earnings of 86.5 pence a share due to last year's sale of its 50 per cent stake in the FTSE International market indexes business to the London Stock Exchange which it said contributed 2.2 pence a share to earnings in 2011.
"If you look at the statement it's pretty clear that 2013 is going to be another grim year," Liberum analyst Ian Whittaker said.
"Overall it's a weak statement, it's a downgrade to guidance and the mere fact they've had a downgrade to what is seen as a defensive stock is likely to drive a negative reaction."
Shares in the group were down 3 percent at 1202 pence by 0903 GMT, back to the level they were trading at at the start of the year following a jump last week.
The weakening conditions come at a time of widespread change for Pearson - for years one of the most stable media groups in Britain.
Marjorie Scardino stepped down at the end of last year after 16 years as chief executive, making way for the head of the international education arm, John Fallon, to take over. The appointment however has also resulted in the departure of the FT Group chief executive, Rona Fairhead, who missed out on the top job.
At the same time the group is merging its Penguin book publisher with Random House, owned by Germany's Bertelsmann, and it faces constant media speculation as to whether it will sell its FT Group under the new CEO, who has few ties to the newspaper industry.
Weak government spending in developed markets weighed on its school publishing business last year, while professional education struggled due to changes in training programmes in Britain, which has resulted in the planned closure of the Pearson in Practice business.
In North America it said it would report modest revenue growth last year after increasing its market share in what was a particularly tough year, with net sales for the combined U.S. School and Higher Education publishing industries declining by 11 percent in the first 11 months of the year.
On the positive side it said its International arm would report double-digit percentage sales growth due to strong demand in developing markets, assessment and English Language Teaching. Books group Penguin traded in line with expectations and digital and subscription revenues helped the Financial Times to counter weaker advertising sales.
As a result it said it expected to report good revenue growth for the group as a whole at constant exchange rates for 2012 and operating profit of around 935 million pounds ($1.48 billion), below a consensus market forecast of 942 million pounds.
"While the downgrade (in the results forecast) may seem modest, the mere fact they have done one for a share with such a high rating and a reputation for upgrades means they should see a "double whammy" (i.e. de-rating and estimate reductions)," Whittaker said.
"Shares have been strong into numbers, we expect to see a sharp reaction today."