For the second time in less than two years, the global education company Pearson says it plans to cut thousands of jobs as part of its ongoing restructuring.
The announcement made as part of its half-year 2017 report to shareholders is an effort to cut costs and increase efficiency as the educational publisher adapts to changing markets for its textbooks, courseware and assessment products.
The company said it will eliminate 3,000 full-time equivalent employees by the end of 2019—with a focus on managerial positions. That’s just over 9 percent of its workforce of 32,000, and follows a 10 percent reduction announced in January 2016.
The company also reported an operating profit for the first half of $20.88 million on revenues of $2.67 billion, an increase of 1 percent in sales, as well as an update on its operations worldwide.
“Pearson has had a solid first half,” said the company’s CEO John Fallon in the release. “We are focused on maximizing performance through the critical second half.”
He said the company will focus on “strong cash generation, prudent management of our balance sheet,” as well a implementing transformation plans.
Still, it’s been a tumultuous ride for Pearson in recent years as the company makes the transition from traditional textbook publisher to online courseware provider. In January, the company’s stock plunged to $7 per share, and in February the company announced a $3.4 billion pretax loss attributed to a writedown on the value of its North American business. April concerns about the company’s ability to expand virtual schools hit the share price. On Friday, the stock closed at $8.45 per share.
The cutbacks in personnel will help the company run a leaner operation at a time when textbooks in higher education are often rented rather than purchased, as courses are conducted online, and college enrollments have declined. Spring enrollments in U.S. colleges fell 1.5 percent, while two-year public colleges and four-year for-profit enrollments, combined, declined 3.8 percent, the company said.
In North America, which represents 63 percent of Pearson’s revenues, executives are conducting a strategic review of the company’s U.S. K-12 digital and print curriculum business, and possibly putting it up for sale, citing the “slow pace of digital adoption” in schools. The company reported on that line in the half-year report, and on its assessment business and Connections Education, which focuses on online education.
Pearson’s Assessment Business
About 30 percent of Pearson’s annual revenues comes from various forms of assessment for K-12, higher education and adult students, but less than 10 percent is devoted to high-stakes testing in K-12.
Part of the company’s announcement on Friday highlighted the annualized impact of lost testing contracts in North America going back to 2015. This June, the state of Mississippi pulled its NCS Pearson Inc. assessment contract for 2017-18 and terminated the remainder of its 10 year-contract, after scoring issues on history exams. While such high-stakes testing produces “less than 10 percent of our revenues, but feels sometimes like it generates 150 percent of the news flow,” quipped John Fallon, CEO of Pearson, in an interview last year with my colleague Sean Cavanagh.
Despite the lost contracts, Pearson made some gains in assessments. It reported delivering 21.4 million standardized online tests to K-12 students, an increase of 5 percent from the same period in 2016. Paper-based standardized tests volumes fell 10 percent to 11.1 million, the company reported.
While Colorado decided to leave the PARCC consortium after the 2017-18 school year, the state subsequently awarded Pearson the contract to deliver English/language arts, mathematics, science, and social studies exams for six years. The company also extended its contract with Virginia to provide computer adaptive testing for the next three years and contracts were extended in Indiana, Arizona, Minnesota, and North Carolina, the company reported.
The K-12 Curriculum Picture
While this portion of its U.S. business is under review, revenues rose modestly here, the report said. A smaller new adoption market and the company’s lower participation rate in that market were “more than offset” by growth and market share gains from a strong performance with its Grades 6-12 English/language arts program, the company said.
“Our new adoption participation rate fell from 64 percent in 2016 to 60 percent in 2017 due to our decision not to compete for the California Grades K-8 ELA adoption with a core basal program,” the report said. The company said it won about 36 percent share of adoptions among those it competed for—up from 30 percent in 2016. In Indiana’s K-12 science adoption, Pearson did not choose to compete but still generated sales, the company said.
Of expenditures on adoptions, Pearson won 25 percent of $380 million spent, up from 19 percent of $470 million spent in 2016 during the same period, for an increase of $5.7 million. That performance was “driven by strong performance in Florida high school social studies, South Carolina middle grades interactive science, and Texas Spanish adoptions,” the company said.
Connections Education revenues declined slightly as growth in enrollment was offset by the expected impact from some virtual school partners choosing to take some non-core services in-house in 2017, the company said.
The online education provider served more than 73,000 “full-time equivalent” students through full-time virtual and blended school programs, with enrollment increasing by 7 percent over the same period last year.
The company reported that two new full-time online, state-wide, partner schools opened for the 2017-18 school year: Alabama Connections Academy and Indiana Career Technical Virtual Charter School. (Last year, my colleague Benjamin Herold interviewed the CEO of Connections Education, who defended cyber charters after he and Arianna Prothero wrote stories highlighting questionable practices in other parts of the sector.)
Now, Connections Education will launch a new digital learning solution with a suite of tailored offerings to help schools and districts build their own K-12 online and blended learning programs.
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