Profits at publisher Pearson fall 29% in '06

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LONDON -- Pearson PLC, the publisher of the Financial Times newspaper and owner of Penguin books, reported Monday that net profit fell 29% in 2006 compared to year earlier when it had a gain in the sale of its stake in a Spanish newspaper.

Net income for the company, which also has a 50% stake in The Economist magazine and owns French newspaper Les Echos, dropped to 446 million pounds ($875.4 million), from 624 million pounds.

Revenue rose 8% to 4.4 billion pounds ($8.7 billion) as 8% sales growth at the company's U.S. schools publishing business outweighed slower sales at Penguin. Ad revenue was also up 9% at the Financial Times.

Pearson's 2005 profit included a gain on the sale of a 79% interest in Recoletos Grupo de Communicacion SA, publisher of Spain's biggest sports newspaper and it this month sold its U.S. governments services unit to Veritas Capital for $600 million.

Excluding those transactions, net profit from continuing operations rose 38% to 455 million pounds ($893.6 million) in 2006, as the company boosted its share of the U.S. educational publishing market.

"The educational market, especially in the U.S., is one in which Pearson excels and management comments around this year's outlook remain confident," said Richard Hunter, an analyst at Hargreaves Lansdown Stockbrokers. "Its investment in content, international expansion and IT seems to be bearing fruit."

The company now generates around two-thirds of its total revenues in the United States, where it publishes school and university textbooks. It has benefited from a sharp upturn in the market there thanks to increases in state and federal education funding.

For the current year, Pearson forecasts growth of 4% to 6% in its schools unit and growth of 3% to 5% in higher education.

"We expect another good year in 2007, underpinned by solid U.S. state budgets and robust adoptions," said Lorna Tilbian, an analyst at Numis Securities.

Tilbian said that Pearson's strength in the educational testing market in part explained Reed Elsevier's announcement last week that it plans to sell its Harcourt Education publishing unit.

Pearson chief executive Marjorie Scardino said the company's strong performance in the education market showed that its focus on developing technology and network applications as well as content was paying off.

She declined to comment on whether Pearson would be interested in acquiring Harcourt or the publishing assets of Thomson Corp. or Wolters Kluwer NV, which have also been put on the market in recent months.

Scardino also declined to comment on whether Pearson remained committed to its ownership of the Financial Times. Analysts have long speculated that Pearson will sell off the Financial Times to focus on the burgeoning education business.

Scardino played up the advertising gains at the Financial Times on Monday, noting that advertising at FT.com, the newspaper's Web site, grew by 30% in 2006.

She added that Pearson plans to bolster revenue at the newspaper through increased use of technology, noting that customers can book campaigns across all four international editions.

Pearson shares fell 1.5% to close at 820 pence ($16.09) on the London Stock Exchange.
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