British education and media group Pearson this morning warned it expects tough market conditions to continue in 2013 after a weak fourth-quarter hit earnings last year.
The owner of the Financial Times newspaper and Penguin books publisher said it now expects to report on February 25 adjusted earnings per share of around 84 pence for 2012, below the 84.9 pence it had predicted in October, due to weaker educational funding in developed markets and sluggish advertising.
The result had already expected to be down on the previous year's earnings of 86.5 pence a share due to the sale last year 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.
The rare downgrade, from a group that is more used to surprising in the other direction, knocked its share price down 3.6 per cent to 1193 pence by 10.04 GMT, slightly below the level they were trading at the start of the year following a jump last week.
"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."
The long-running concerns over the strength of education spending, particularly in the United States, have led to Pearson shares underperforming the STOXX Europe 600 media and publishing sector index in the last 12 months with Pearson down over 3 per cent while the index has risen nearly 15 per cent.
"While we are upbeat on the group's structural position and long-term prospects, we think valuation is up with events at 13.8 times 2013 expected price-to-earnings ratio," Citi said in a note.
"Our overall view on Pearson is balanced. We think the company will continue to post further market share gains as it did in 2012 but we are not convinced overall earnings momentum will improve until the second half of 2013 expected, or even maybe 2014 expected."
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.
Reuters
