Monday, July 31, 2006

Pearson Announces Second Half Results

As expected, Pearson announced strong half year results reflecting growth in all segments. Revenues were up 8% and operating profit up a mighty 57%. The company is confident about the full year and commented that due to the seasonality of the book business the preponderance of revenue and most of its profit is in the second half of the year. The company continues to have good organic growth and is growing faster than the markets they serve.

In Education, the company expects to grow revenues in the 3-5% range (which is a wide range but reflects their need to be conservative at this stage) but also commented that the first half was stronger than expected. Operating margins are set to improve further in k-12 and remain constant in Higher Ed. Both K-12 and Higher Ed were strong during the prior six months with both segments performing better than expected. Additionally, both have continued to beat the competition in key adoptions, open territories and with new editions of important College subject titles. The company continues to expand its online online and assessment programs in Higher Ed with a 29% increase in registrations for their online learning systems.

The trade group at Penguin is also doing well with a record number of titles on the NYT best seller lists and 43 top ten titles in the UK. They also won a number of literary prizes including their second Pulitzer in a row, Orange and Whitbread Awards. Operating income is higher than the prior period and they expect further improvements.

The Financial Times group, which has come under fire from analysts for at least the past 12 months is showing improvement with more expected. Circulation is up 5% and advertising revenues are up 11%. They expect further operating income improvements over the balance of the year and continued steady organic growth. They have made recent announcements about integrating the print and online publishing operations which will improve content, raise efficiencies and reduce some expenses.

In the first half of this FY, the company has spent over $500mm on acquisitions in Education and the FT group. As the company stated in their annual report, it is their intention to invest in testing and administrative software companies which are compatible with the strategic goals of the education unit. This they have done with the purchases of National Evaluation Systems, Chancery Software and PowerSchool. (The last two are noted in prior posts). Incredibly, Pearson believes they have an installed based of half of all students in US schools which is over 29,000 schools and 25mm students. This must represent a long term strength of their US School business. At they FT they purchased earlier this year.

There was no word on additional acquisitions for the full year.

Here is the Pearson web site with their earnings press release and powerpoint presentation.

Here is a summary of their comments:


  • Good start to the year. Sales up 8%; adjusted operating profit up 57% to £73m.
  • Sustained organic growth and market share gains. Pearson Education sales up 11% with
    leading position in US School new adoption market and 4% growth in US Higher Education; FT Group sales up 6% with FT advertising revenues up 11%; Penguin sales up 2%.
  • Strong profit growth in all businesses. Pearson Education, traditionally loss-making in the first half, breaks even (loss of £21m in 2005). FT Group profits up 23% to £55m and Penguin profits up 38% to £18m.
  • Full-year outlook maintained. Pearson’s profits are always heavily weighted to the second half of the year. With this first-half performance, we continue to expect strong earnings growth and cash generation and a further significant rise in our return on invested capital in 2006.

Marjorie Scardino, chief executive, said:

“These results provide further evidence of the quality and potential of our business. All parts of Pearson are making strong progress, and our steady investment in new content and services is paying off with sustained organic
growth, market share gains and margin improvement. We remain confident that 2006 will be another good year for Pearson both in competitive and financial

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