Sotheby’s Rallies Most Since 2011 on Higher Profit, Margins

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  • Lower expenses, better margins, Asian sales drove net income
  • CEO Smith sees art market ‘paradox’ with reluctant sellers

Sotheby's Rallies Most Since 2011 on Asian Art Sales

Sotheby’s rallied the most in more than four years as lower costs, improved commission margins and a jump in Asian art sales fueled higher earnings at the auction house.

The stock rose 13 percent to $36.49 in New York, the biggest gain since November 2011, after the company said Monday that second-quarter profit increased 31 percent. Adjusted earnings of $1.51 a share exceeded the $1.04 average estimate of analysts in a Bloomberg survey.

A 30 percent drop in salary and incentive costs helped make up for a 16 percent decline in net auction sales. Asian art was the brightest spot with sales increasing 31 percent. Even with the positive results, Chief Executive Officer Tad Smith said the art market remains spotty.

“There are a number of geo-political, macroeconomic, commodity pricing, and financial market uncertainties that leave the art market with a paradox,” Smith said on a conference call. While collectors are still buying top quality works of art in well-curated sales, “consignors who have the luxury of discretion are showing a bit of reluctance to sell their work at this time,” he said.

Net income increased to $89 million, or $1.52 a share, from $67.6 million, or 96 cents, a year earlier, the auction house said a statement Monday.

Pricing Discipline

Margins improved to 16.4 percent as the number high-value works, for which the auction house charges lower commission rate, declined and the company reduced use of auction guarantees.

“While much of this improvement was attributable to a shift in mix towards lower price bands, we believe part of this improvement can also be attributed to greater pricing discipline,” Chief Financial Officer Michael Goss said on the call.

The total number of Asian clients buying Western art at Sotheby’s increased 12 percent in the first half of this year, Smith said. Top lots in contemporary sales in May in New York and in June in London were purchased by Asian collectors.

Overall, Sotheby’s faced headwinds. Second quarter net auction sales fell to $1.56 billion and private sales declined 37 percent to $146.6 million. Contemporary art auctions declined 10 percent and Impressionist and modern art fell 47 percent from a year ago.

Auction sales in the first half of 2016 were $2.45 billion, including commissions, 21 percent less than a year earlier. Christie’s auction sales for same period were $2.5 billion.

The comparison of the current and prior year periods for Sotheby’s was also influenced by a change in the timing of the summer contemporary art sales in London, which were held in the second quarter of 2016 after occurring in the third quarter in 2015.

The auctioneer’s shares gained 18 percent last month after Taikang Life Insurance Co. disclosed a 14 percent stake in Sotheby’s on July 27 and said it may seek board representation. Chen Dongsheng, Taikang Life’s chairman and chief executive officer, is also the founder and president of China Guardian Auctions Co., China’s second-largest auction house.

Taikang’s filing follows a May disclosure that Singapore-based Sotheby’s shareholder Shanda Payment Holdings Ltd. was poised to increase its stake.

(Updates with closing share price in second paragraph.)
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