Photographer: Don Emmert/Getty Images

Sotheby's Sees Fourth-Quarter Loss; Scraps Dividend for Buyback

  • Firm can repatriate earnings for strategic U.S. investments
  • Company boosts share buy backs to as much as $325 million

Sotheby’s, the New York-based auctioneer of art and collectibles, posted a fourth-quarter loss and said it would scrap its quarterly dividend to buy back more shares instead.

The net loss will probably be in a range of $10 million to $19 million, Sotheby’s said in a report Friday. The company said it would no longer pay its 10 cent quarterly dividend, after the board of directors approved a $200 million increase to the remaining $125 million share buyback program.

Chief Executive Officer Tad Smith, who took the helm of the auctioneer in March, has made several top-level hires while cutting jobs through buyouts to reverse a 44 percent drop in the shares in the past 12 months. The quarterly loss was due to charges from the buyouts and repatriation as well as price guarantees that Sotheby’s provided to the estate of its former Chairman A. Alfred Taubman to auction its collection.

"There’s tremendous change in the dynamics of the art market, in Sotheby’s management, in its operating strategy and in its capital allocation," said David Schick, managing director at Stifel Nicolaus & Co. "But in some ways this is starting to become understood. Today’s release and how they are talking about the business feels like part of the narrative that has been in place for some weeks."

As the art market began to slow down last year, Sotheby’s won the Taubman collection after offering a $515 million guarantee to his estate. Sotheby’s said it lost $12 million on the Taubman sale, including $6 million on expenses and $6 million on the guarantee.

The Taubman sales also impacted auction commission margins, which declined to about 12.8 percent from 13.7 percent a year ago. Without Taubman’s sale, commission margins would have been 15.9 percent in fourth quarter. The final evening auction for the collection on Jan. 27 will offer Old Master artworks estimated from $21.2 million to $30.3 million.

“I am surprised by the Taubman collection," said Kristine Koerber, an analyst at Barrington Research, in an interview. "I was expecting them to do a little better."

Share Buyback

Smith said on the conference call that the company’s share price was a factor in the decision to boost the buybacks, which will begin as soon as possible. Shares of Sotheby’s rose 4.2 percent to $23.73 at 12:44 p.m. in New York trading.

“Management sees some value in the stock and will be aggressive with buybacks," Koerber said. "Usually shareholders tend to reward companies that are repurchasing shares."

Sotheby’s said it will take a non-cash charge of $63 million to $68 million tied to the repatriation of foreign earnings, which it needs for corporate strategic initiatives in the U.S.; and a $37 million charge for the employee buyouts.

As the rout in global stock markets raises concerns about art sales in 2016, Smith said Sotheby’s could cope with a possible downturn.

"Even if the art market blows," he said, Sotheby’s has the liquidity to withstand it.

Before it's here, it's on the Bloomberg Terminal.