21st Jan 2015 12:48
LONDON (Alliance News) - Pearson PLC is the best-performing stock on the FTSE 100 Wednesday, after it said it expects 2014 adjusted earnings per share to come in at the upper end of its guidance due to a lower-than-expected tax rate and strong performances from its North American higher education business and Penguin Random House.
Pearon expects to post adjusted earnings per share of 66 pence, down from 70.1 pence in 2013, but towards the top end of its previously guided range of between 62 to 67 pence. It expects to post an adjusted operating profit of GBP720 million, down from GBP736 million a year before.
The Financial Times owner is also preliminarily guiding that its adjusted earnings per share, which excludes gains or losses from the sale of assets as well as acquisition costs and related charges, will rise to between 75 pence to 80 pence in 2015.
Pearson's shares were trading up 4.6% at 1,293.00 pence midday Wednesday, as the trading update was the first January update the publisher has issued that hasn't included a profit warning since 2012.
Pearson said it had faced tough market conditions throughout 2014 as its North America and UK education businesses were hit by cyclical and policy-related pressures, and smaller school textbook adoption in South Africa hit its growth business.
In its fourth quarter, the company saw market conditions "consistent" with the rest of the year, seeing a solid performance from its North American higher education business, its English Language Learnings business in China and Penguin Random House, good growth in its online services, and improving profitability in the Financial Times Group.
This was offset by declines in publishing in South Africa, Brazil learning systems, learning services and assessments in North America and its Core geographic markets.
"Despite continuing challenging market conditions, overall we had a good competitive performance in 2014 and expect to report results in line with the guidance we gave at the start of the year," said Chief Executive John Fallon in a statement. "We enter 2015 a simpler, leaner, more cash generative business, well set for long-term growth and success, helping more people around the world make progress in their lives through learning."
Despite the positive update, broker Liberum has maintained its Sell rating on Pearson, noting that structural pressures in the business are intensifying, particularly citing US higher education where book rentals are taking a share of the market, and are putting pressure on publishers.
Liberum argues that whilst Pearson's 2015 earnings guidance looks good at first sight, it actually seems to imply underlying growth below consensus, as the company is getting an estimated 3.5 pence boost from foreign exchange and a further 1.7 pence from the lower-than-expected tax rate.
Pearson said it expects its effective tax rate in 2014 to be "modestly lower" that its 19% to 21% guidance range, and expects a tax rate of about 17% in 2015.
The company makes about 60% of its sales in the US, and a five cent move in the pound-dollar exchange rate in a full year impacts its adjusted earnings per share by about 1.2 pence. The average exchange rate in 2014 was USD1.65, while the year-end rate was USD1.56. Sterling was trading at USD1.5106 midday Wednesday.
"While the share price reaction may be positive today, it is worth remembering that, a decade ago, whenever similarly challenged stocks such as newspapers met guidance, it was heralded as the end of the problems and proof the problems were cyclical. We expect the same pattern is happening here," Liberum said.
By Hana Stewart-Smith; [email protected]; @HanaSSAllNews
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