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UPDATE 3-Pearson turns a page by nudging profit forecast higher​
October 17, 2017 / 6:27 AM / in a month

UPDATE 3-Pearson turns a page by nudging profit forecast higher​

* Sees 2017 adjusted operating profit of 576-606 million pounds

* Guidance range was 546-606 million pounds

* Boosted by cost cuts, rental and digital products (Adds quotes, details, reaction)

By Kate Holton

LONDON, Oct 17 (Reuters) - Pearson said pressures weighing on its North American business were starting to ease, enabling the group to nudge its full-year profit outlook higher and record the first positive trading update for the education group in recent years.

Hit by the shift to digital from paper textbooks, Pearson has cut thousands of jobs and launched a rental and online business following a string of profit warnings.

The group had sold businesses such as the Financial Times newspaper and the Economist magazine to focus on education.

On Tuesday it said the rate of decline within its North American Higher Education courseware business had eased, while a reduction in its tax rate and a deal to insure part of its pension obligations would help its financial performance. Its shares were up 5.6 percent by 0755 GMT.

“We are confident we are on a path to return Pearson to long-term and sustainable growth,” Chief Executive John Fallon. “This is encouraging but there is still a long way for us to go.”

Providing everything from school textbooks to academic courseware and electronic testing, Pearson has been hit by the shift to digital that has encouraged students to rent or go online to find cheaper courseware.

In August, Pearson said it would slash its dividend and cut another 3,000 jobs. By 2020, Fallon will have reduced Pearson’s staff by 10,000 from around 39,000 when he took over in 2013.

IMPROVED TREND

On Tuesday the group said it had seen some traction with its move to reduce the rental price of 2,000 eBook titles, prompting eBook revenues to increase more than 20 percent in the first nine months of the year.

A print rental pilot also started well and the group said it would add a further 100 titles to the offering in January.

Where last year it was hit by a mass return of textbooks that had not been sold, this year it said the trend seemed better.

“While we don’t have perfect visibility as to what is going to happen over the next couple of weeks, if there was a significant surprise coming in the returns we would likely have seen it by now,” Finance Director Coram Williams said.

With signs of improvement, Pearson now expects 2017 adjusted operating profit to come in between 576 million pounds ($763 million) and 606 million pounds. The previous range was set at 546-606 million pounds.

In a nine-month trading update, Pearson said sales in U.S. higher education courseware fell 1 percent on an underlying basis, within its full-year range of up 1 percent to down 7 percent.

It also revised its guidance on taxation, expecting a 2017 rate around 16 percent against a previous expectation of 21 percent, helping its finance costs.

Analysts welcomed the improved trading, however some remained sceptical as to whether the company had fully turned a corner.

“We remain concerned around the structural issues alongside the disruption the transition to digital has on top line and margins,” Jefferies analysts said. “We reiterate Underperform.”

Pearson also said it had agreed a deal to insure a third of its pension scheme liabilities totalling 1.2 billion pounds with Legal & General and Aviva, which “substantially reduces” the risk that it would be unable to fund future retiree benefits.

($1 = 0.7548 pounds)

Reporting by Kate Holton; Editing by Mark Potter and Keith Weir

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