Sotheby's reported on the earnings results
For the three and twelve months ended December 31, 2010, total revenues were $318.0 million and $774.3 million, respectively, an increase of 46% and 60%, when compared to the same periods in the prior year. This is almost entirely due to an increase in auction commission revenues stemming from strong sales around the world during the periods. In 2010, there was a 105% increase in the number of works sold over $1 million, the point at which the buyer’s premium rate decreases from 20% to 12%. As a result, offsetting the increase in auction commission revenues is a decline in auction commission margin from 20.4% to 18.0% in the fourth quarter and from 20.7% to 18.3% in the full year, largely attributable to this change in sales mix towards higher valued items in both periods.
Operating income for the fourth quarter of 2010 was $155.5 million, a $56.6 million, or 57%, growth from the prior period. For the full year, operating income was $274.0 million, a $220.9 million, or 416% increase from the prior year. These increases are largely due to the aforementioned growth in revenues and are offset by higher incentive compensation costs stemming from the strong results of the periods as well as an increase in direct costs of services that is consistent with the level and composition of our auction offerings during these periods.
Net income for the fourth quarter was up 31% on prior year to $96.2 million, or $1.38 per diluted share and $161.0 million, or $2.34 per diluted share for the full year (compared to net income of $73.6 million, or $1.09 per share in the fourth quarter of 2009 and a net loss of ($6.5) million, or ($0.10) per share for the full year of 2009).
“The net income of $161.0 million that we have been able to deliver in 2010 is our best yearly result ever, apart from 2007. It is a remarkable accomplishment,” said Bill Ruprecht, President and Chief Executive Officer of Sotheby’s. “The recovery of the global art market which was aided in part by the increased buying activity of clients from new markets certainly contributed to these results, as did the difficult decisions we had to make beginning in the autumn of 2008 – the headcount reduction, tightening of our cost structure and steadfast focus on auction commission margins – which have paid off considerably and translated to an EBITDA margin** of 37.2% which is 200 basis points higher than in 2007. The leverage in our business model is clear and consistent, and reflects our focused approach to cost discipline and margin management in 2010.
“Our success was achieved with a much lower risk profile than in the previous peak years of 2006 and 2007, as we have been highly selective in our use of auction guarantees and only issued such guarantees in tandem with risk sharing arrangements that very significantly reduced our financial exposure,” continued Mr. Ruprecht.
A solid balance sheet showed cash at the end of 2010 of $483.7 million. Thanks to recent excellent results and liquidity, the Company was able to buy back $48.3 million of its 7.75% Senior Notes in the fourth quarter and further de-leverage our balance sheet. This debt extinguishment incurred a charge of $6.3 million in the fourth quarter but will, however, reduce future annual interest expense by approximately $3.7 million in each of the next three years, 2011 through 2014, and by approximately $1.8 million in 2015. In addition, Sotheby’s was upgraded by both Moody’s and Standard & Poor’s during the year; and was able to extend out
the maturity of its bank revolving credit facility by two years to September 2014.
To read the full release of Sotheby's 2010 financial report, click HERE.
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