Pearson, the media and education group, disappointed investors yesterday when it revealed that its books arm, Penguin, was still suffering in tough trading conditions.
Its shares fell almost 3%, or 17.5p, to 620p in spite of news that its flagship newspaper, the Financial Times, had broken even in the fourth quarter - the first time it had done so since the middle of 2002.
In a trading statement ahead of its full-year results next month, Pearson blamed weak sales in the United States over the Christmas period for the disappointment at Penguin. In particular, American consumers failed to buy the latest Penguin fiction or its long list of older titles.
The disappointment in the US, where Penguin earns 70% of its income, comes after distribution problems from UK warehouses dented sales last year. In November, chief executive Marjorie Scardino blamed its poor book sales on the US election - usually a period when consumers buy newspapers and watch television instead of buying books.
Investment bank UBS predicted a 34% decline in Penguin profits to £60m for the full year, down from £68m. The book division makes about 20% of group profits. Pearson said yesterday it expected earnings of 30p a share for the year - at the low end of City expectations.
Numis Securities downgraded its profit forecast with analyst Paul Richards saying: "There's a lot of value within Pearson. It's just taking quite a long time to crystallise."
Penguin was the only disappointment as most divisions appear to be trading in line with expectations. The FT, which has suffered an advertising recession, particularly in financial markets, is expected to cut last year's £32m loss by about £20m in 2004.
The company has failed to give any guidance for the newspaper group for 2005, citing volatile advertising markets. Analysts expect losses to be cut to a few million, with the most optimistic hoping for breakeven for the full year.
Higher education performed better than expected in the fourth quarter. Pearson expects 2005 to be a strong one for education, its biggest division. The adoption cycle - the number of US states ordering new school textbooks - is expected to grow 80%. Pearson expects the outlook for education to drive "a significant acceleration" in 2005 financial performance.
