Shares were down to 632.5p, a 4.02% fall, or 26.5p, after Pearson delivered a gloomy outlook for 2003 after saying it saw no signs of recovery in corporate and financial advertising, and that the Financial Times Group continues to face a severe corporate advertising recession.
Advertising revenues at the Financial Times newspaper for the second half of year are expected to be around 11% lower than the same period last year.
In a statement, Pearson said: "Compared with the first half of this year, we expect advertising revenues to be some 8% lower. As a result of this weaker advertising environment, we now expect the FT Group's profits, before internet enterprises, to be around 20% lower than last year."
The news was met with disappointment by analysts. Paul Richards, an analyst at brokerage Numis, told Reuters: "The trading update is just on the disappointing side. The earnings guidance was pretty much in line but the disappointment was on the FT Group, with most analysts expecting a 15% fall in profit."
Despite the weakening advertising position, Pearson said it remained on track to deliver a significant earnings recovery for the full year. It said it expected adjusted earnings of around 30p per share, up 40% on 2001.
Earlier this year, when Pearson announced a 55% fall in earnings for the first six months, Marjorie Scardino, chief executive of Pearson, said: "The strength of our education and consumer publishing businesses should help us to sustain this momentum both through the second half, when we make most of our profits, and in 2003."
Pearson said it had stemmed losses at its internet division and expected FT.com to break even in the fourth quarter of this year, having reduced losses to £35m. It anticipates it will deliver another steep reduction in internet losses next year, which it says be no more than £20m in 2003.
Looking ahead to 2003, Pearson said it was confident of another year of improved performance in earnings, cash and returns.
It is forecasting another strong year for its US School business and margins to improve at Pearson Education. It said the Penguin Group has another strong publishing line-up and should benefit from further margin gains at Dorling Kindersley.
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