Pearson, the education publisher and owner of the Financial Times, today announced strong profits for last year but its shares dropped sharply due to investor concern about the group's reliance on the US economy.

Analysts said that, while the results were above forecasts and management remained confident, investors were understandably expressing some caution.

Keith Bowman, an analyst at Hargreaves Lansdown, said: "Exposure to the US government's education budget does provide some defensive element, but even the US government's finances are under increasing pressure and the balance of the business at Pearson [book publishing and financial news] are both classic cyclical businesses."

Pearson shares fell as low as 14p to 652p in mid-morning trades.

Pearson said that advertising revenues at the FT Group had continued to grow in the early part of the year, but gave warning that advertising trends were difficult to predict in an uncertain market environment. However, the media group said that it expected further improvement in profit at FT Publishing this year, even without any growth in advertising revenues.

Revenue in the year to the end of December rose from £4.05 billion to £4.2 billion, while adjusted pre-tax profit increased from £502 million to £549 million.

There was underlying profit growth of 9 per cent to £404 million at its education division, a rise of 20 per cent to £74 million at the Penguin publishing arm and 30 per cent growth to £153 million at the FT Group.

Pearson said in a statement this morning that the outlook for 2008 remained strong, with education, responsible for 64 per cent of 2007 sales and operating profit, producing “another year of good profit growth”. The Harcourt business, which had recently been added to its schools operation, was progressing well.

"Excluding Harcourt, we expect underlying sales growth [in the schools business] in the low single digits as US market growth of three to four per cent is partly offset by our lower participation rate in new US adoptions and the conclusion of our UK key stage testing contract," the statement said.

Dame Marjorie Scardino, the chief executive, has spent more than $8.8 billion (£4.4 billion) buying education assets since 1997, including Simon & Schuster textbooks and Harcourt Education's international business.

Pearson has also been selling assets, such as foreign-language newspapers, to focus on the Financial Times and its education business, which publishes textbooks and provides testing for nurses, business-school students and stockbrokers.

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