Sotheby's Earnings Report

Sotheby's earnings report for the first six months of 2015 was just released, and the results are not good. They are looking at a large currency exchange loss as well as timing of the London contemporary sale which was held in the 3rd quarter for 2015, but was in the 2nd quarter in 2014.  Sothebys's saw an increase in private sales transactions and in its financial division. In the block quotes below are Sotheby's press release followed by a Wall Street Journal article and a market post from Skate's.

Sotheby's reported the following in a press release

For the three and six months ended 30 June 2015, Sotheby's reported total revenues of $332.0 million and $487.7 million, respectively, a decrease of 1% in both periods as compared to the prior year.  This slight decline is largely due to a change in the timing of the summer evening sale of Contemporary Art in London, which was held in the third quarter in 2015 after being held in the second quarter in 2014, as well as unfavorable movements in foreign currency exchange rates which contributed $12.4 million and $20.5 million to the overall decreases in total revenues for the second quarter and first half periods, respectively.  Total revenues excluding the impact of foreign currency exchange rate changes* increased by $8.6 million (3%) and $15.5 million (3%), for the three and six month periods, respectively.

For the three and six months ended 30 June 2015, Adjusted Operating Income* of $125.5 million and $147.7 million, respectively, decreased by $23.5 million (16%) and $11.1 million (7%), respectively. The decline is due to the calendar shift of the summer evening sale of Contemporary Art in London, as well as a loss incurred on a painting acquired by Sotheby's earlier in the year and sold at auction in the second quarter.  This painting was acquired along with another painting that was sold at auction for an offsetting profit which will be recognized later in the year when payment is received and title passes to the buyer.  Also unfavorably influencing the comparison to the prior periods is the impact of provisions recorded in the second quarter as a result of recent developments, including a cancelled sale provision and costs associated with a client claim, both related to property sold in prior years.

Partially offsetting the unfavorable events in the second quarter of 2015 is an increase in private sale commissions as well as an improvement in auction commission margins.  For the three and six months ended 30 June 2015, private sale commissions increased $5.4 million (32%) and $3.8 million (13%), respectively, due to an increase in the volume of high-value transactions completed during the second quarter.  Also, for the three and six months ended 30 June 2015, Auction Commission Margin increased 0.3% (from 15.2% to 15.5%) and 0.4% (from 14.9% to 15.3%), respectively, primarily due to the change in the buyer's premium rate structure enacted in February, partially offset by a higher level of shared auction commissions and an unfavorable change in sales mix.

The second quarter and year to date periods also benefited from the continued growth of Sotheby's Financial Services loan portfolio.  The loan portfolio of $774 million at 30 June 2015 increased $179.7 million (30%) when compared to the prior year, contributing revenue of $24.7 million, a $10.8 million (78%) increase over the first half of 2014.

Second quarter 2015 Adjusted Net Income* is $73.1 million and Adjusted Diluted Earnings Per Share* is $1.04, compared to $87.8 million and $1.26, respectively, a year ago.  For the first half of 2015, Adjusted Net Income* is $80.5 million and Adjusted Diluted Earnings Per Share* is $1.15, compared to $84.9 million and $1.20, respectively, in last year's first half.

Including charges associated with the CEO and leadership transition, prior year shareholder activism and restructuring, operating income, net income attributable to Sotheby's and diluted earnings per share are $116.5 million, $67.6 million, and $0.96, respectively, for the second quarter of 2015, and $130.4 million, $77.6 million, and $1.11, respectively, for the second quarter of 2014.  Including these charges, operating income, net income attributable to Sotheby's and diluted earnings per share are $134.9 million, $72.8 million, and $1.04, respectively, for the first half of 2015, and $134.5 million, $71.5 million, and $1.01, respectively, for the first half of 2014.

Sotheby's Board of Directors has approved an increase of $125 million to the Company's remaining share repurchase authorization of $125 million, resulting in a total share repurchase authorization of $250 million.  The Board has concluded that this share repurchase program strikes a balance between preserving capital for growth, downside risk protection, and returning available capital to shareholders. Sotheby's intends to repurchase $125 million of its common stock from shareholders in the near term via an Accelerated Share Repurchase ("ASR") Program.  The Company expects the balance of the share repurchase program will be executed in the next 12 - 18 months, via open market transactions and/or additional ASR Programs.

President and Chief Executive Officer Tad Smith said, "Our Company delivered strong sales to date in 2015 but some anomalies in the second quarter depressed the bottom line.  We are moving forward with our strategic plan and look forward to reporting its results in due course."

Source; Sotheby's

The Wall Street Journal reported on the Sotheby's earning report

Sotheby's on Friday reported weaker-than-expected profits and sales for its latest quarter as currency headwinds and the shifting of a contemporary art sale to later in the year dented the top line.

The auction house experienced a $12.4 million hit to currency impacts for the quarter ended June 30, the first completed three-month period posted under new Chief Executive Tad Smith. Sotheby’s also said losses from the sale of a single painting also hurt results.

The company said an increase in private sale commission and an improvement in auction-commission margins partially offset the currency headwinds and the shift in its events calendar.

Private sales commissions increased 32%, boosted by growth in high-value transactions, the auctioneer reported. Sotheby’s said it also benefited from growth in its financial services loan portfolio, which had a 30% increase and contributed $24.7 million to revenue.

Overall for the latest quarter, Sotheby’s reported a profit of $67.6 million, or 96 cents a share, compared with a year-earlier profit of $77.6 million, or $1.11 a share. Excluding certain items, including costs associated with the leadership transition, per-share earnings fell to $1.04 from $1.26.

Revenue fell 1.1% to $332 million.

Analysts surveyed by Thomson Reuters expected a profit of $1.24 a share and revenue of $342 million.

The venerable auction house has had a roller-coaster few years, welcoming a new top executive amid increasing clamor from activist shareholders calling for a leaner, more-profitable business.

Sales at the New York-based company reached a high of $6.7 billion last year. But the two-year shake-up led by Sotheby’s largest shareholder, Dan Loeb of Third Point LLC, has proved tumultuous. Mr. Loeb joined Sotheby’s board last year only after the company ousted several members of management and its chief auctioneer, Tobias Meyer.
Mr. Smith, the former CEO of Madison Square Garden Co., took over for William Ruprecht after the departing executive agreed to step down last November as investors agitated for more profits for shareholders.

On Friday, along with its latest quarter results, Sotheby’s board approved an increase of $125 million to its remaining share-repurchase allotment for a total of $250 million.

 Source: The Wall Street Journal


 Skate's reported on the Sotheby's earnings

Sotheby’s Revenue Declines, Sotheby’s Finance Becomes The Second Largest Business Unit

The Firm Confesses Losses in Principal Segment and Launches Expanded Shares Buyback

Sotheby’s published its financial results today. It is official – there is no growth and Sotheby’s incurs losses on private dealings.

For the three and six months ended 30 June 2015, Sotheby’s reported total revenues of $332.0 million and $487.7 million respectively, a decrease of 1% in both periods as compared to the prior year.
Certain disclosures are nerve wrecking:

The decline is due to the calendar shift of the summer evening sale of Contemporary Art in London, as well as a loss incurred on a painting acquired by Sotheby’s earlier in the year and sold at auction in the second quarter. This painting was acquired along with another painting that was sold at auction for an offsetting profit which will be recognized later in the year when payment is received and title passes to the buyer. Also unfavorably influencing the comparison to the prior periods is the impact of provisions recorded in the second quarter as a result of recent developments, including a cancelled sale provision and costs associated with a client claim, both related to property sold in prior years1.

In other words, among other matters Sotheby’s confessed that it made a major loss in its Principal segment to an extent that it affected its financial results for the first half of the year.

Offsetting disappointing performance of the auction and private dealing segments, Sotheby’s Finance, as predicted by Skate’s, is both the fastest growing part of Sotheby’s operations and now is the second largest business unit of the firm. Sotheby’s Financial Services loan portfolio was $774 million at 30 June 2015 and increased $179.7 million (30%) when compared to the prior year, contributing revenue of $24.7 million, a $10.8 million (78%) increase over the first half of 2014.

Recognizing that the growth of Sotheby’s Finance business unit segment is not enough to alleviate sell pressure on Sotheby’s stock (to be likely triggered by declining revenues and materials losses in private dealing segment), Sotheby’s board re-instated dividend payments halted earlier this year and announced share buyback program.

Here is related announcement:

Sotheby’s Board of Directors has approved an increase of $125 million to the Company’s remaining share repurchase authorization of $125 million, resulting in a total share repurchase authorization of $250 million. The Board has concluded that this share repurchase program strikes a balance between preserving capital for growth, downside risk protection, and returning available capital to shareholders. Sotheby’s intends to repurchase $125 million of its common stock from shareholders in the near term via an Accelerated Share Repurchase (“ASR”) Program. The Company expects the balance of the share repurchase program will be executed in the next 12 – 18 months.

This is not going to help. Watch for Sotheby’s share price today heading south.

Source: Skate's