By Kate Holton

LONDON (Reuters) - Britain's Pearson said a drop in demand for higher education textbooks in its biggest market the United States had resulted in a weaker-than-expected third-quarter performance.

The announcement sent shares in the education publisher tumbling 10 percent in early trade on Monday, although the group said cost cutting and a weak pound enabled it to maintain its full-year and mid-term profit forecasts.

Pearson, which sold the Financial Times newspaper and its stake in The Economist magazine last year to concentrate on education, said poor demand for textbooks from college campuses in the United States had compounded pressures on its American and British exam marking businesses.


That led to a 7 percent decline in organic sales in January-September, worse than the 5 percent fall analysts had predicted.

"Some of our markets have been challenging, in particular, sales in our largest business, U.S. higher education, are down due to cautious buying patterns from key retailers," Chief Executive John Fallon told reporters.

"This is an industry-wide issue."

The 172-year-old company is still reeling from profit downgrades in the past few years sparked by pressures on all its major markets, and announced plans in January to cut 4,000 jobs or 10 percent of its workforce.

It has been hit by a recovering U.S. economy as more people entered employment, reducing college enrolment numbers.

Fallon said these changes meant colleges were taking a more cautious approach to ordering textbooks, while many students were also happy to use second-hand books rather than buy new ones.

"We see this as a temporary phenomenon that will flow through the channel over the next six to nine months," Fallon said, adding that the group had already seen signs of improvement in September and October.

Finance director Coram Williams said based on anecdotal evidence, the group expected U.S. higher education enrolments to be flat to down 1 percent for this college year, although they would not have official confirmation until December.

Cost cutting enabled Pearson to reiterate its target of 2016 adjusted operating profit of between 580 million pounds and 620 million pounds for the year. It said it would also get a 4.5 pence boost to earnings per share if current exchange rates persist until the end of 2016.

It reiterated its medium target of seeing adjusted operating profit at or above 800 million pounds in 2018.

Shares in the group, which had begun to pick up in the past month, were down 10 percent at 0825 GMT, the biggest faller on Britain's FTSE 100 index. They have now shed 36 percent in the last 12 months.

"Overall, the shares may struggle to push much higher in the near term, in our view, following a decent rally into this update," Pearson analyst Jonathan Helliwell said in a note.

(Editing by Paul Sandle and Susan Fenton)

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