By Ian Walker

LONDON--Shares in Pearson PLC plunged more than 26% on Wednesday after the world's largest education company issued a profit warning for 2018, warned of lower future dividends and said it plans to sell its stake in its Penguin Random House publishing joint venture.

Pearson blamed further declines in the North American higher-education courseware business for the warning, but said it still expects its 2016 operating profit to be in line with its previous guidance.

It plans to sell or recapitalize its 47% stake in Penguin Random House to bolster its finances and invest in other parts of its business. Its joint-venture partner, German media company Bertelsmann SE, said it was open to raising its stake in the publishing house "provided the financial terms are fair."

The publishing house was formed in 2013 when the two companies combined their book-publishing businesses.

Pearson's share price has almost halved in the past three years and the company has laid off thousands of employees amid trading pressures in key markets. It has sold several assets during the period, including the Financial Times newspaper and its 50% noncontrolling stake in the publisher of the Economist magazine, to fund its growth across global education, raising billions of dollars.

While higher education in North America remains Pearson's biggest problem, the company also has faced setbacks in its efforts to capitalize on the Common Core primary- and secondary-education standards that have faced a backlash in several U.S. states.

Wednesday's stake sale will form part of broader plan by Pearson to reshape its portfolio while it accelerates its digital transition into higher education.

It reported an 8% fall in revenue in 2016 in underlying terms, which strip out one-off items. It expects to report an adjusted operating profit of GBP630 million ($777.1 million) for the year.

The company added that it plans to recommend a final dividend of 34 pence for 2016, making a total payout for the year of 52 pence. However, it said that from 2017 it intends to rebase its dividend to reflect portfolio changes, increased investment, and earnings guidance.

Ulrike Dauer in Frankfurt contributed to this article.

Write to Ian Walker at ian.walker@wsj.com

(END) Dow Jones Newswires

January 18, 2017 05:46 ET (10:46 GMT)

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