Pearson's educational publishing operation should meet its financial targets for the full year, but Penguin Group's results will not hit expectations, said Pearson chief executive Marjorie Scardino in a trading update last week.
Penguin Group's sales and earnings have been hurt by a weak dollar (70% of Penguin's sales are in the U.S.), a slowdown in the U.S. consumer book market and significant disruptions caused by the new systems implementation in Penguin's U.K. warehouse, Scardino said. For the first nine months, sales, excluding currency conversions, were up 1% for the group.
Scardino said that while Penguin USA had been running "well ahead" of industry averages in the first half of the year, the company "turned down" with the industry in the third quarter. A spokesperson for Penguin USA said the company was still up for the first nine months of the year, but noted that business was soft in September and October. Scardino said she believes the biggest factor in slowing sales in late summer/early fall was the presidential election campaign, and she was hopeful that consumers will return to the stores now that the election is over. And, like a growing number of industry members, Scardino expressed concern about trends in the mass market paperback segment. She called the segment "interesting," telling analysts that mass market paperback's historical low price point advantage doesn't have the same draw for consumers as it did in the past. "We'll have to see what happens," she said about the segment's future.
Scardino was more bullish on prospects for educational publishing, particularly for the medium term. She said she was "confident" about the outlook for the U.S. education market for several years, not just for 2005, as adoption opportunities remain strong and funding improves.
Through the first nine months of 2004, educational sales were up about 1%. While Pearson still expects sales of basal textbooks to be down by mid-single digits, sales of supplementary texts have risen by a similar percentage and sales to open markets have been solid. With gains outside the U.S., Scardino said, she expects Pearson's total school business to be about flat with 2003.
The company's college division is having a strong year, Scardino said, helped by gains in online learning, custom publishing and lower returns. She expects sales in the college division, which were up 3% in the nine-month period, to be up 4% to 6% for the year.