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Why Shares of Pearson PLC Jumped Today

By Timothy Green - May 5, 2017 at 1:03PM

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The company expects to match its guidance for the first quarter, continue major cost-cutting, and has started a strategic review of its U.S. K-12 courseware publishing business.

What happened

Shares of Pearson PLC (PSO 2.46%) surged on Friday after the education courseware provider gave an update on its first quarter and announced various initiatives. The stock was up about 13% at 11:15 a.m. EDT.

So what

Pearson disclosed that its first-quarter sales were in line with its previous guidance, up 6% in underlying terms. The main growth drivers were North American education courseware, professional certification, online program management, South African textbooks, and U.K. student assessment.

The Pearson logo.

Image source: Pearson PLC.

Pearson also left its outlook for 2017 unchanged. The company expects operating profit between 570 million pounds and 630 million pounds and adjusted EPS between 48.5 pence and 55.5 pence. More details on restructuring costs will be given when the company reports its full first-quarter results.

In addition to updating investors on its performance, Pearson disclosed that it had removed more than 650 million pounds of cost over the past four years. The company expects to further reduce costs by an addition 300 million pounds by the end of 2019, mainly in North America.

Pearson has also initiated a strategic review of its U.S. K-12 courseware publishing business, which has suffered from a slow pace of digital adoption, high capital intensity, and a competitive environment. It is also in talks to potentially sell its 47% stake in Penguin Random House.

Now what

Pearson CEO John Fallon commented on the company's first quarter and its strategic moves:

Though the bulk of our sales come later in the year, our first quarter trading is encouraging and in line with expectations. We are creating a leaner Pearson, equipped to innovate and win in digital education. The measures we are announcing today build on the work completed last year and will allow us to further simplify our portfolio, reduce costs and accelerate our digital transformation.

Shares have tumbled nearly 50% over the past three years as profits turned to losses. Investors pushed up the stock on Friday, hoping that the company is now on the right path to turning itself around.

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