Sotheby’s Announces Second Quarter 2018 Results And It’s Not Great




Sotheby’s has reported its financial results for the second quarter and six months ending June 30, 2018. For the three months, Sotheby’s reported net income of $57.3 million, or $1.08 per diluted share. These results represent a decline of 26% from $76.9 million and 24% from $1.43 per diluted share in the prior year period partly due to the movement of certain Spring Hong Kong sales into the first quarter of 2018 that have historically been held in the second quarter. The main reason for the drop in profits was a sizable decline in the auction house’s profit margin on commissions, down to to 14.1% in the second quarter and 15% over the first half of 2018.

We are confident that our strategic initiatives to differentiate our company are picking up steam – Tad Smith

Sotheby’s total sales were up 22% to $3.5bn over the first half of 2018 up to 30 June, its earnings were down by 23%, with a net income of $50.8m. For the second quarter, net income was $57.3m, a fall of 26% from $76.9m last year. The auction house said this was partly due to moving some of its spring Hong Kong sales into the first quarter of 2018.

For the six months ended June 30, 2018, Sotheby’s reported net income of $50.8 million, or $0.95 per diluted share, a 23% and 21% decline from the prior period, respectively. Excluding certain items, Adjusted Net Income* for the first half of 2018 was $63.0 million, or Adjusted Diluted Earnings per Share* of $1.18. These results represent a decline of 5% from $66.1 million and 3% from Adjusted Diluted Earnings per Share* of $1.22 in the prior year period.

“Sotheby’s is on track to deliver another year of excellent growth in auction sales and even more impressive growth in private sales,” said Tad Smith, Sotheby’s President and CEO, adding, “and we are confident that our strategic initiatives to differentiate our company are picking up steam.”
Highlights

Second quarter results are significantly impacted by the movement of certain Spring Hong Kong sales into the first quarter of 2018 after occurring in the second quarter of the prior year. The schedule change shifted $130 million in Net Auction Sales and $20 million in operating income to first quarter 2018 results.
Consolidated Sales increased 15% to $2.4 billion in the second quarter of 2018 and 22% to $3.5 billion in the first half of 2018.
Private sales grew 57% in the second quarter of 2018 to $296 million and 63% in the first half of 2018 to $543 million.

Results for the second quarter and first half of 2018 were impacted by a decline in Auction Commission margin to 14.1% and 15%, respectively. In the second quarter of 2018, the art market was driven by competitive high-value consignments from fiduciary sources such as estates, foundations and charities. Accordingly, when compared to the prior year periods, our Auction Commission Margin was reduced by a higher level of auction commissions shared with consignors in these situations.

The comparison of Auction Commission Margin to the prior year periods was also negatively impacted by buyer’s premium used to offset auction guarantee shortfalls and fees incurred in respect of auction guarantee risk-sharing arrangements. In particular, the current year periods were negatively impacted by the sale of two guaranteed paintings, which collectively reduced our Auction Commission Margin by 1.4% and 1.1% during the three and six month periods, respectively.

Three Months Ended June 30, 2018 v. 2017 Financial Highlights  (in thousands of dollars, except per share data)

Variance

Three months ended June 30, 2018 2017 $ / % %
Total revenues (a) $ 345,636 $ 339,859 $ 5,777 2 %
Net income attributable to Sotheby’s $ 57,282 $ 76,891 $ (19,609 ) (26 %)
Adjusted Net Income (b) $ 58,058 $ 77,533 $ (19,475 ) (25 %)
Diluted earnings per share $ 1.08 $ 1.43 $ (0.35 ) (24 %)
Adjusted Diluted Earnings Per Share (b) $ 1.09 $ 1.44 $ (0.35 ) (24 %)
Statistical Metrics:
Aggregate Auction Sales (c) $ 2,027,421 $ 1,839,939 $ 187,482 10 %
Net Auction Sales (d) $ 1,707,432 $ 1,543,331 $ 164,101 11 %
Private Sales (e) $ 296,060 $ 189,027 $ 107,033 57 %
Consolidated Sales (f) $ 2,363,587 $ 2,048,903 $ 314,684 15 %

Six Months Ended June 30, 2018 v. 2017 Financial Highlights (in thousands of dollars, except per share data)

Variance

Six months ended June 30, 2018 2017 $ / % %
Total revenues (a) $ 541,432 $ 539,168 $ 2,264 — %
Net income attributable to Sotheby’s $ 50,760 $ 65,566 $ (14,806 ) (23 %)
Adjusted Net Income (b) $ 63,013 $ 66,109 ($ 3,096 ) (5 %)
Diluted earnings per share $ 0.95 $ 1.21 ($ 0.26 ) (21 %)
Adjusted Diluted Earnings Per Share (b) $ 1.18 $ 1.22 ($ 0.04 ) (3 %)
Statistical Metrics:
Aggregate Auction Sales (c) $ 2,854,211 $ 2,407,229 $ 446,982 19 %
Net Auction Sales (d) $ 2,398,801 $ 2,018,234 $ 380,567 19 %
Private Sales (e) $ 542,648 $ 333,810 $ 208,838 63 %
Consolidated Sales (f) $ 3,453,201 $ 2,832,353 $ 620,848 22 %

(a) Total revenues for the three and six months ended June 30, 2017 have been updated to reflect the retrospective adoption of a new accounting standard that became effective on January 1, 2018. See Note 1 of Notes to Condensed Consolidated Financial Statements included in our Form 10-Q for the period ended June 30, 2018.

Sotheby’s has been uniting collectors with world-class works of art since 1744. Sotheby’s became the first international auction house when it expanded from London to New York (1955), the first to conduct sales in Hong Kong (1973), India (1992) and France (2001), and the first international fine art auction house in China (2012). Today, Sotheby’s presents auctions in 11 different salesrooms, including New York, London, Hong Kong and Paris, and Sotheby’s BidNow program allows visitors to view all auctions live online and place bids from anywhere in the world. Sotheby’s offers collectors the resources of Sotheby’s Financial Services, the world’s only full-service art financing company, as well as the collection, artist, estate & foundation advisory services of its subsidiary, Art Agency, Partners. Sotheby’s presents private sale opportunities in more than 70 categories, including S|2, the gallery arm of Sotheby’s Global Fine Art Division, and three retail businesses: Sotheby’s Wine, Sotheby’s Diamonds, and Viyet, the online marketplace for interior design. Sotheby’s has a global network of 80 offices in 40 countries and is the oldest company listed on the New York Stock Exchange (BID).


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