Troubled British publisher Pearson cut its profit guidance for the next two years, lowered its 2017 dividend and said it may sell its stake in Penguin Random House to help battle "unprecedented" changes hitting its key markets.
Shares in Pearson, which has issued a string of profit warnings in recent years, plunged 23 percent as it announced its latest attempt to counter the disruption caused by the move to digital publishing, piling pressure on CEO John Fallon.
The 173-year-old company, which sold the Financial Times newspaper and its stake in The Economist magazine in 2015 to concentrate on education, has been hit by a recovering U.S. economy which has encouraged more people to enter employment, hitting college enrollment numbers.
Students have also increasingly been using second-hand books and renting courseware, leading to a 30 percent decline in net revenues in the North American higher education courseware market in the final quarter of 2016.
"The education sector is going through an unprecedented period of change and volatility," Fallon said.
"Our higher education business declined further and faster than expected in 2016."
Pearson said cost cutting would enable it to hit 2016 operating profit guidance but that the 2017 figure would be around 180 million pounds ($222 million) lower than expected a year ago.
It sees 2017 operating profit between 570 million and 630 million pounds, driving adjusted earnings per share (EPS) of between 48.5 pence and 55.5 pence.
Analysts had expected operating profit of 704 million and EPS of 64 pence.
It has withdrawn its operating profit goal for 2018 and said it would have to "rebase" its dividend from 2017 onwards.
Pearson, which owns 47 percent of the Penguin Random House book venture with Bertelsmann, said it may seek to sell its stake or recapitalise the business and extract a dividend in order to protect its balance sheet.
Bertelsmann said it was open to increasing its stake.
"Management's credibility is likely to be severely impacted by today's news," Liberum analysts said.