Sotheby's Jumps 15% as Fourth-Quarter Profit Beats Estimates

Updated on
  • Results driven by sales of David Bowie collection, Richters
  • Auction sales fell 29% in 2016 but margins are improving

Sotheby’s, the New York-based auctioneer of art and collectibles, reported a fourth-quarter profit as its deal-making strategy helped improve commission margins. Shares jumped as much as 15 percent in New York.

Net income was $65.5 million, or $1.20 a share, compared with a loss of $11.2 million, or 17 cents, a year earlier, the company said in a statement Monday. On an adjusted basis, profit of $1.35 a share beat the $1.17 average estimate from five analysts in a Bloomberg survey.

The shares rose $5.33 to $45.42 at 11:05 a.m. in New York. The stock has doubled in the past 12 months.

“Our fourth quarter 2016 results came in better than expected largely due to a number of strong fourth-quarter sales,” Chief Executive Officer Tad Smith said in a statement. “These results reflect growing confidence in the market as collectors responded enthusiastically to the great collections and works we secured for sale.”

In November, Sotheby’s sold all 356 works of art and design from David Bowie’s collection, generating $41.1 million in London. In New York, it had success with the collection of Steven and Ann Ames, led by a group of paintings by Gerhard Richter, which tallied $131.3 million, surpassing the estimate and the guarantee offered by the auction house to win the works.

Making ‘Progress’

Consolidated sales were $4.9 billion in 2016, down 27 percent from 2015. By contrast, rival Christie’s sold $5.4 billion of art and collectibles last year. This overall figure includes auction sales, inventory sales and private sales.

Sotheby’s auction sales for the full year were $4.2 billion, down 29 percent. Private sales fell 13 percent in 2016 to $583 million. Online buyers spent $155 million, up about 20 percent from the prior year.

Although sales were down, auction commission margins in fourth quarter increased to 18 percent from 12.9 percent in 2016. For the full year, margins were 17.1 percent compared with 14.3 percent in 2015.

Sotheby’s progress in improving auction commission margins isn’t “going to continue indefinitely into the future to the tune of 200 or 300 basis points,” said Michael Goss, the company’s chief financial officer. “As the market recovers at the higher end where buyer’s premiums are lower, that will work against us as well.”

Looking Ahead

Sotheby’s executives said they were optimistic about the art market going forward based on consignments and conversations with clients. 

“We’re certainly feeling less headwind than we were at this time last year,” Goss said, adding that the first half of 2017 is expected to be on par with the previous year, and any rebound is likely to happen “later in the year.”

Guarantees remain an important weapon for Sotheby’s and “used prudently, guarantees are good for consignors, collectors, the market overall, and investors,” Smith said. As of Feb. 22, Sotheby’s had outstanding auction guarantees totaling $147.7 million, with $89.4 million covered by irrevocable bids.

Sotheby’s typically posts a profit in the fourth quarter because of the industry’s seasonality, as major November auctions account for a large chunk of sales.

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