Bottom Line: US slowdown a worry – but this is a blip in the long-term buy

 
Elizabeth Fournier
A BILLION pounds is a lot of money. That’s how much investors wiped off Pearson yesterday after a weaker than expected update sent its shares down more than nine per cent. The company has had a busy few months – selling Mergermarket in November and buying Grupo Multi in December – all while restructuring its divisions in a process that is costing more than planned.

It’s not great, but the real problem is the slowdown in North America, which accounted for over 70 per cent of profits in 2012.

College enrolment in the US is falling – down by half a million in 2012 compared to the previous year – and budgets are tight, squeezing margins and sending operating profits lower.

But there’s still a lot to like about the stock. Strong emerging markets growth in international education and a decent quarter for the Penguin Random House joint venture were both highlights, and at least there’s a natural end to the restructuring process.

Yesterday’s profit warning was a nasty shock, but that doesn’t mean its time to bail out of Pearson for good.

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