Troubled Pearson: Poor Sales Boosted by Weak Pound

Underlying sales fell a hefty 7% in the first nine months of the year at publishers Pearson, led by a particularly weak North America

Morningstar Equity Analysts 17 October, 2016 | 3:35PM

Weakness in sales growth continued into the third quarter for Pearson (PSON), albeit with some improvement in September. However, the firm's business model is highly seasonal, with full-year results heavily dependent on the fourth quarter. Increased cost-savings targets offset some of this trading weakness; thus, we do not expect to make any material changes to our forecast for the full year. We retain our £9.50 fair value estimate and our narrow moat rating.

Pearson generates two thirds of its sales from America, so sales had a positive foreign exchange impact from a weakened British pound

Pearson generates almost two thirds of its sales from North America, so a headline sales decline of 3% was flattered by the positive foreign exchange impact from a weakened British pound. Underlying sales fell a hefty 7% in the first nine months of the year, led by a particularly weak North America. While some of this was the comparative impact from lost assessment contracts in 2015, sales in higher-education courseware have continued their weakness into the third quarter.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Pearson PLC512.40 GBX-1.65

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Morningstar Equity Analysts  Morningstar stock and fund analysts cover 2,000 mutual funds, 2,100 equities, and 300 exchange-traded funds.

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