Sotheby's released its 1st half 2014 financial results today with some good and bad news. With that, the stock price has been hurt as well by the mixed results. The good news is net auction sales are up 24% to $2.7 billion, but net income decreased by $14.1 million , dropping by 15%. Earnings per share were $1.11, and were expected to be $1.43. Hence the stock slide of nearly 8% today. The decrease in net income is due to higher than expected expenses.
Sotheby's reports
Source: Sotheby'sSotheby's Reports First Half 2014 Financial Results
24% Increase in Net Auction Sales
42% Increase in Adjusted Operating Income*
20% Increase in Adjusted Diluted Earnings Per Share*
NEW YORK, Aug. 8, 2014 (GLOBE NEWSWIRE) -- Sotheby's (NYSE:BID) today reported financial results for the second quarter and first half ended 30 June 2014.
Bolstered by continued strength in the global art market and by excellent spring sales worldwide, Sotheby's achieved a 42% increase in adjusted operating income* and a 20% increase in operating income in the first half of 2014.
Sotheby's net auction sales increased 24% to $2.7 billion on strong global sales during the period - particularly in Hong Kong and London - which led to an 18% increase in auction commission revenues to $403.8 million as compared to the prior year.
"Sotheby's is seeing success across categories and around the world," said Chairman, President and Chief Executive Officer Bill Ruprecht. "The number of buyers at all levels, the amount of property we were entrusted to sell, and the prices we achieved are all up significantly this year. We sold 487 lots at over $1 million, more than any other art market participant. We are demonstrating that the art market is robust and we're serving new and existing clients who trust Sotheby's to deliver superior expertise and market knowledge and attractive results.
"The fact that 26% of our buyers in the first half of the year were first-time clients shows we are engaging with a new generation of collectors, and that's exciting. We're looking forward to building on the successes of these six months with a number of exceptional sales this fall and with our new eBay partnership that will showcase our New York auctions to an unrivaled global online audience of millions of potentially new collectors," he added.
In the first half of 2014, adjusted expenses* increased 4% to $301.8 million, due to higher salaries and related costs, consistent with prior guidance and the increased earnings for the period. These factors were partially offset by lower marketing and general and administrative expenses, reflecting management's ongoing efforts to reduce costs in those areas. In the first half of 2014, total expenses increased 22% due to the cost of Principal revenues attributable to a series of profitable transactions completed in the period ($32.0 million) and special charges ($24.3 million).
In July, Sotheby's announced a restructuring plan that will reallocate resources to collecting categories and regions with the highest potential for growth and to further reduce costs. "We are engaging in this reallocation of staff and resources to achieve costs savings and to focus our resources and people on areas of the Company with the greatest growth opportunities," said Executive Vice President and Chief Financial Officer Patrick McClymont.
Adjusted net income* increased 22% to $84.9 million for the first half, resulting in adjusted diluted earnings per share* of $1.20 as compared to $1.00 per share in the prior year. The comparison of adjusted net income* to the prior period is significantly influenced by an increase in Sotheby's effective tax rate from 23% to 39%, primarily due to the accrual of U.S. taxes on the earnings of foreign subsidiaries in 2014 and the impact of a non-recurring $6.8 million tax benefit recorded in the second quarter of 2013 related to a loss on the tax basis in a foreign subsidiary.
Net income for the first half increased 3% to $71.5 million, resulting in diluted earnings per share of $1.01. First half net income was adversely impacted by after-tax special charges of $13.3 million.
For the second quarter of 2014, adjusted operating income* increased 12% from the prior year. In the quarter, a 19% increase in net auction sales resulted in a $35.5 million (13%) increase in auction commission revenues as auction commission margin decreased from 15.9% to 15.2%, primarily due to competitive conditions and sales mix. In the second quarter of 2014, operating income decreased $2.9 million (2%) due to special charges of $18.6 million.
Adjusted net income* for the second quarter of 2014 decreased 4% to $87.8 million, resulting in Adjusted diluted earnings per share* of $1.26, as compared to $1.33 per share in the prior year, largely due to the increase in Sotheby's effective tax rate.
Net income for the second quarter decreased $14.1 million (15%), resulting in diluted earnings per share of $1.11. Second quarter net income was adversely impacted by after-tax special charges of $10.2 million.
Second and Third Quarter 2014 Sales
London's June Impressionist and Modern Art sales brought $247.3 million, near the high end of the pre-sale estimate and with a number of exceptional prices. The highlight of the sale was Claude Monet's Nymphéas which brought $54.1 million and the second highest price for the artist at auction. Piet Mondrian's quintessential masterpiece, Composition with Red, Blue and Grey, which appeared at auction for the first time in our sale brought $25.9 million. The evening sale was 91.3% sold by lot and two-thirds of works sold for above their high estimate.
The following week, our London Contemporary Art sales realized $184.6 million, near the high end of the pre-sale estimate as well. Works by top British artists achieved record prices, with Bacon and Doig highlighting the results. Francis Bacon's Three Studies for Portrait of George Dyer brought the highest price of the Evening sale with $45.4 million, a record for a small-scale triptych by the artist and surpassing the pre-sale estimate of $34 million by a wide margin. Also, a new auction record was established for Peter Doig when his Country-rock (wing mirror) sold for $14.4 million. 88% of the sold lots of the Evening sale achieved prices at or above their pre-sale estimates.
Closing out the London summer sales season were the July Old Master and British Paintings sales series which totaled a record $127.4 million for the week, surpassing the pre-sale estimate of $73/108 million by a wide margin. The top lot of the series was George Stubbs' Tygers at Play which brought $13.2 million, above the pre-sale high estimate of $10 million. 97% of the works sold achieved prices within or above the pre-sale high estimate and 19 auction records were attained during the week including those for a drawing by Botticelli and works by Giovanni da Rimini and Jan Brueghel the Elder.
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