Pearson profit adjustment hints at recovery
Pearson has improved its earnings guidance, despite its underlying revenues falling by 2% in the first three quarters of 2017. The educational publisher promised a £300m ($394m) share buyback, as the North American market for school and higher education software dropped by just 1% on an underlying basis after last year's slump. Adjusted operating profit is now predicted to be between £576m and £606m, up from the previous estimate of between £546m and £606m.

Pearson 's underlying revenues fell 2% in the first nine months of the year, largely as expected, but the educational publisher improved its earnings guidance and promised a £300m share buyback.

As expected, the FTSE 100 group faced declines in the North American market for school and higher education courseware, though sales in US higher education courseware declined by only 1% on an underlying basis, which was on the better half of management's expectations as US digital revenue increased 11% and the division rallied from last year's unprecedented slump.

So while the structural pressures in US higher education are not going away, trading has not been as bad as it could be, so full year operating profits are expected to be in the upper half of the range set at the start of the year.

Adjusted operating profit are now expected to be between £576m and £606m, fine-tuned from the prior £546-606m range, feeding through to an earnings per share range of 51-54p, tightened up from 45.5-52.5p.

Net debt at the end of September had shrunk slightly over the year to £1.31bn from £1.36bn, as the balance sheet benefitted from good cash generation and the sale of a 22% stake in Penguin Random House and the offloading of the Global Education business.

Chief executive, John Fallon said: "We continue to invest in growing market opportunities, gaining share with our digital transformation, and becoming simpler and more efficient. With good cash generation and a strong balance sheet, we are going to return £300m in surplus capital through a share buyback.

"We expect tough market conditions in our biggest business to continue over the next couple of years. We're focused on being the long term winner in digital learning and creating sustainable value for our shareholders."

The digital focus has seen higher education digital courseware revenue grew 11%, with an 89% increase in institution-wide Direct Digital Access contracts signed this year to bring the total to 477, while cutting rental prices eBook titles saw revenues increase more than 20% and a print rental pilot had a "successful start".