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Financial Times and Economist Publishing group Pearson shares surge after beating expectations, To Invest GBP1 billion In Digital

By Amarendra Bhushan for CEOWORLD Magazine Updated:July 27, 2009

Profits at FT Publishing, the newspaper and magazine division of Pearson PLC which owns the Financial Times and has a 50% stake in the Economist, fell 40% in the first half of the year.

British Education and newspaper publisher Pearson PLC is trading ahead of its expectations, allowing it to keep its full-year outlook in spite of adverse currency effects, lifting its shares by close to 10 percent.

Pearson reported strong earnings and flat underlying sales for the first half, as an improvement in revenue at its educational publications business — the world’s largest — offset declines at the FT Group and at consumer book division Penguin.

“Over the past six years, Pearson has delivered substantial growth; this year is about proving our resilience and competitive edge,” Chief Executive Marjorie Scardino said in a statement. “So far, we’ve passed the test.”

The company said a weaker U.S. dollar meant it was effectively upgrading by 3 pence its 2009 guidance for keeping adjusted EPS at at least 57.7 pence. Its forecast assumes the current rate of $1.64 to sterling prevails in the second half.

“Although for 2009 we have favoured rotation into quality cyclicals, today’s results are impressive and we would expect the stock to rebound from the weakness seen going into the results,” analysts at brokerage Numis wrote in a note.

Shares in Pearson traded up 9.75 percent at 665 pence by 0803 GMT, making it Europe’s top blue chip gainer .FTEU3 and easily outperforming a European media index .SXMP that rose 1 percent, Reuters reported.

Pearson PLC (PSO) is investing over GBP1 billion in its digital and services business in 2009, its largest ever investment outside of content, in order to maintain growth.

Speaking to reporters on a conference call following the group’s first half results, chief executive Marjorie Scardino said the company aims to make the investment in digital and services operations across all of its units: Pearson Education, The Financial Times Group and The Penguin Group.

Pearson has spent the last ten years transforming its business from that of a traditional publisher into one that offers numerous digital services such as the FT.com Web site and online testing and assessment. The fruits of this transformation helped the group deliver earnings ahead of expectations Monday despite concerns that the economic recession would hurt its education business.

Chief Finance Officer Robin Freestone declined to detail where the money would be spent, although he said the largest proportion would go to its educational division, which generates around 60% of sales and profits.

There have been concerns that U.S. state budget problems would impact the group’s earnings forecasts but Scardino said Pearson is now less dependent on its schools business, having grown its assessment and higher education operations, and even though state budgets are down, it is still up to the districts to allocate their education budgets.

Scardino also said there are no plans to cut costs further at the FT Group, where sales have been hit by the advertising slump.

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