Pearson cuts 4,000 jobs and issues another profit warning

Will John Fallon's latest shake-up be enough to halt the publisher's slump?

by Rebecca Smith
Last Updated: 21 Jan 2016

If there’s one thing John Fallon has learned during his tenure as Pearson’s CEO it’s that education publishing is a tough place to be.

Many traditional publishers have found the transition to digital hard-going, but the 172-year-old company has the extra pressure of attempting to reshape global education. So, how’s that been going?

Well, it has just unveiled a £320m restructuring plan that will cut one-tenth of its workforce – around 4,000 jobs – and issued its second profit warning in three months. The company warned that its adjusted earnings for 2015 would be between 69p and 70p per share, which was below guidance given in October and below analysts’ expectations. Profits will fall further this year – Pearson said it'd likely be between 50p and 55p a share, which would be the lowest since 2007. Dividends will be capped at 2015 levels, following a succession of dismal trading updates.

Read more: Meet the married couple who built a £22m education business

It’s fair to say that’s a pretty bleak picture. And it’s not like Fallon has been avoiding making big decisions. His predecessor Marjorie Scardino once famously said the FT would be sold ‘over my dead body’. Fallon though, wanted to focus on its promising education division so off it went to Nikkei, Japan’s largest media company for £844m. Pearson also agreed to sell its 50% stake in the Economist Group for £469m. In 2013, the firm merged Penguin with Bertelsmann’s Random House to create the world’s biggest book publisher back in 2013 – a sign to analysts that the firm was prepared to take drastic action.

And yet despite what seemed a positive outlook in 2010, boosted by demand from emerging markets and unemployed Americans heading off to college following the financial crisis, the following years Pearson reported annual organic growth of 1%, -1%, 1% and 0%. Announcing its latest troubling update, Fallon blamed ‘the cyclical and policy-related challenges in our biggest markets’, which have ‘persisted for longer than anticipated’, but that explanation has seemed flimsy to some analysts.

There’s a wider perception problem too, notably in North America where Pearson does some 60% of its sales. Many parents and teachers feel it’s too intrusive, attempting to control every aspect of education from curriculums to tests to teacher qualifications. Education is a notoriously sensitive area and the increasing focus on standardised testing has been an issue fraught with tension. Pearson looming over this space hasn’t made it the most well-liked of companies, but its move into testing has been important – it means less reliance on old-fashioned publishing. 

What's clear is that Fallon is edging closer and closer to the door with each dire update – particularly if he fails to change perception of the business model being incredibly complex and in need of further restructuring. He's running out of time to demonstrate whether his strategy will make the grade.

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