Sotheby’s Reports 2018 Second Quarter Financial Results

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August 6, 2018 at 8:00 AM EDT

Sotheby’s Reports 2018 Second Quarter Financial Results

 

 

NEW YORK, Aug. 06, 2018 (GLOBE NEWSWIRE) -- Sotheby's (NYSE: BID) today reported its financial results for the second quarter and six months ended June 30, 2018. 

For the three months ended June 30, 2018, Sotheby's reported net income of $57.3 million, or $1.08 per diluted share. These results represent a decline of 26% from $76.9 million and 24% from $1.43 per diluted share in the prior year period partly due to the movement of certain Spring Hong Kong sales into the first quarter of 2018 that have historically been held in the second quarter. 

For the six months ended June 30, 2018, Sotheby's reported net income of $50.8 million, or $0.95 per diluted share, a 23% and 21% decline from the prior period, respectively.  Excluding certain items, Adjusted Net Income* for the first half of 2018 was $63.0 million, or Adjusted Diluted Earnings per Share* of $1.18.  These results represent a decline of 5% from $66.1 million and 3% from Adjusted Diluted Earnings per Share* of $1.22 in the prior year period.

"Sotheby's is on track to deliver another year of excellent growth in auction sales and even more impressive growth in private sales," said Tad  Smith, Sotheby's President and CEO, adding, "and we are confident that our strategic initiatives to differentiate our company are picking up steam."  

Highlights

  • Second quarter results are significantly impacted by the movement of certain Spring Hong Kong sales into the first quarter of 2018 after occurring in the second quarter of the prior year.  The schedule change shifted $130 million in Net Auction Sales and $20 million in operating income to first quarter 2018 results.
  • Consolidated Sales increased 15% to $2.4 billion in the second quarter of 2018 and 22% to $3.5 billion in the first half of 2018. 
  • Private sales grew 57% in the second quarter of 2018 to $296 million and 63% in the first half of 2018 to $543 million.
  • Results for the second quarter and first half of 2018 were impacted by a decline in Auction Commission margin to 14.1% and 15%, respectively.  In the second quarter of 2018, the art market was driven by competitive high-value consignments from fiduciary sources such as estates, foundations and charities.  Accordingly, when compared to the prior year periods, our Auction Commission Margin was reduced by a higher level of auction commissions shared with consignors in these situations.
  • The comparison of Auction Commission Margin to the prior year periods was also negatively impacted by buyer's premium used to offset auction guarantee shortfalls and fees incurred in respect of auction guarantee risk sharing arrangements. In particular, the current year periods were negatively impacted by the sale of two guaranteed paintings, which collectively reduced our Auction Commission Margin by 1.4% and 1.1% during the three and six month periods, respectively.

       
Three Months Ended June 30, 2018 v. 2017 Financial Highlights
(in thousands of dollars, except per share data)

            Variance  
Three months ended June 30,     2018     2017   $ / %   %
Total revenues (a) $ 345,636   $ 339,859   $ 5,777     2 %  
Net income attributable to Sotheby's $ 57,282   $ 76,891   $ (19,609 )   (26 %)  
Adjusted Net Income (b) $ 58,058   $ 77,533   $ (19,475 )   (25 %)  
Diluted earnings per share $ 1.08   $ 1.43   $ (0.35 )   (24 %)  
Adjusted Diluted Earnings Per Share (b) $ 1.09   $ 1.44   $ (0.35 )   (24 %)  
Statistical Metrics:                
Aggregate Auction Sales (c) $ 2,027,421   $ 1,839,939   $ 187,482     10 %  
Net Auction Sales (d) $ 1,707,432   $ 1,543,331   $ 164,101     11 %  
Private Sales (e) $ 296,060   $ 189,027   $ 107,033     57 %  
Consolidated Sales (f) $ 2,363,587   $ 2,048,903   $ 314,684     15 %  


 

Six Months Ended June 30, 2018 v. 2017 Financial Highlights
(in thousands of dollars, except per share data)

            Variance
Six months ended June 30,   2018     2017   $ / %   %
Total revenues (a) $ 541,432   $ 539,168   $ 2,264     -- %
Net income attributable to Sotheby's $ 50,760   $ 65,566   $ (14,806 )   (23 %)
Adjusted Net Income (b) $ 63,013   $ 66,109   ($ 3,096 )     (5 %)
Diluted earnings per share $ 0.95   $ 1.21   ($ 0.26 )   (21 %)
Adjusted Diluted Earnings Per Share (b) $ 1.18   $ 1.22   ($ 0.04 )     (3 %)
Statistical Metrics:              
Aggregate Auction Sales (c) $ 2,854,211   $ 2,407,229   $ 446,982     19 %
Net Auction Sales (d) $    2,398,801   $ 2,018,234   $ 380,567     19 %
Private Sales (e) $ 542,648   $ 333,810   $ 208,838     63 %
Consolidated Sales (f) $   3,453,201   $ 2,832,353   $ 620,848     22 %

(a) Total revenues for the three and six months ended June 30, 2017 have been updated to reflect the retrospective adoption of a new accounting standard that became effective on January 1, 2018. See Note 1 of Notes to Condensed Consolidated Financial Statements included in our Form 10-Q for the period ended June 30, 2018.  

(b) See Appendix B for a description of these non-GAAP financial measures and reconciliations to the most comparable GAAP amounts.

(c) Represents the total hammer (sale) price of property sold at auction plus buyer's premium, excluding amounts related to the sale of our inventory at auction, which are reported within inventory sales.

(d) Represents the total hammer (sale) price of property sold at auction, excluding amounts related to the sale of our inventory at auction, which are reported within inventory sales.

(e) Represents the total purchase price of property sold in private sales that we have brokered, including our commissions.

(f) Represents the sum of Aggregate Auction Sales, Private Sales, and inventory sales.

Non-GAAP Financial Measures

*Adjusted Net Income and Adjusted Diluted Earnings Per Share are non-GAAP financial measures.  See Appendix B for a description of these non-GAAP financial measures and reconciliations to the most comparable GAAP amounts.

Forward-Looking Statements

This release contains certain "forward-looking statements" (as such term is defined in Section 21E of the Securities and Exchange Act of 1934, as amended) relating to future events and the financial performance of Sotheby's.  Such statements are only predictions and involve risks and uncertainties, resulting in the possibility that the actual events or performances will differ materially from such predictions.  Major factors, which Sotheby's believes could cause the actual results to differ materially from the predicted results in the "forward-looking statements" include, but are not limited to, the overall strength of the global economy and financial markets, political conditions in various countries, competition with other auction houses and art dealers, the amount and quality of property available for consignment and the marketability at auction of such property.  Please refer to our most recently filed Form 10-K for a complete list of Risk Factors.

Investor Relations Information

All Sotheby's Press Releases and SEC filings are available on our web site at www.sothebys.com.  An outline of the conference call can be found here: http://investor.shareholder.com/bid/events.cfm.

Sotheby's will host a conference call at 9:00 AM EDT on August 6, 2018, to discuss its second quarter and first half 2018 financial results.  Please dial 888-371-8897 and for callers outside the United States, Puerto Rico and Canada, please dial 1-970-315-0479, approximately 15 minutes before the scheduled start of the call.  The call reservation number is 3339879. The conference call will also be accessible via webcast on the Investor Relations section of the Sotheby's web site at http://investor.shareholder.com/bid/events.cfm.

About Sotheby's

Sotheby's has been uniting collectors with world-class works of art since 1744. Sotheby's became the first international auction house when it expanded from London to New York (1955), the first to conduct sales in Hong Kong (1973), India (1992) and France (2001), and the first international fine art auction house in China (2012). Today, Sotheby's presents auctions in 11 different salesrooms, including New York, London, Hong Kong and Paris, and Sotheby's BidNow program allows visitors to view all auctions live online and place bids from anywhere in the world. Sotheby's offers collectors the resources of Sotheby's Financial Services, the world's only full-service art financing company, as well as the collection, artist, estate & foundation advisory services of its subsidiary, Art Agency, Partners. Sotheby's presents private sale opportunities in more than 70 categories, including S|2, the gallery arm of Sotheby's Global Fine Art Division, and three retail businesses: Sotheby's Wine, Sotheby's Diamonds, and Viyet, the online marketplace for interior design. Sotheby's has a global network of 80 offices in 40 countries and is the oldest company listed on the New York Stock Exchange (BID).

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Browse sale catalogues, view original content, stream live auctions and more at www.sothebys.com, and through Sotheby's apps for iPhone, iPad, Android, Apple TV and Amazon Fire

 

APPENDIX A

SOTHEBY'S
CONDENSED CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
(Thousands of dollars, except per share data)

    Three Months Ended   Six Months Ended
    June 30,
2018
  June 30,
2017
  June 30,
2018
  June 30,
2017
Revenues:                
Agency commissions and fees   $ 290,879     $ 301,768     $ 456,405     $ 413,033  
Inventory sales   40,106     19,937     56,342     91,314  
Finance   9,641     13,359     19,522     26,126  
Other   5,010     4,795     9,163     8,695  
Total revenues   345,636     339,859     541,432     539,168  
Expenses:                
Agency direct costs   59,449     54,842     94,722     76,131  
Cost of inventory sales   42,414     22,255     58,409     93,662  
Cost of finance revenues   1,793     5,078     4,056     10,115  
Marketing   6,276     5,951     11,998     11,862  
Salaries and related   96,718     88,540     175,437     154,090  
General and administrative   45,671     43,362     89,484     82,313  
Depreciation and amortization   7,343     5,676     14,443     11,060  
Voluntary separation incentive programs, net               (162 )
Restructuring charges   2,146         2,146      
Total expenses   261,810     225,704     450,695     439,071  
Operating income   83,826     114,155     90,737     100,097  
Interest income   482     367     847     624  
Interest expense   (8,894 )   (7,572 )   (18,207 )   (15,105 )
Write-off of credit facility fees   (3,982 )       (3,982 )    
Extinguishment of debt           (10,855 )    
Non-operating income   2,449     944     3,873     2,988  
Income before taxes   73,881     107,894     62,413     88,604  
Income tax expense   17,838     31,468     13,702     24,176  
Equity in earnings of investees   1,234     466     2,040     1,133  
Net income   57,277     76,892     50,751     65,561  
Less: Net (loss) income attributable to noncontrolling
interest
  (5 )   1     (9 )   (5 )
Net income attributable to Sotheby's   $ 57,282     $ 76,891     $ 50,760     $ 65,566  
Basic earnings per share - Sotheby's common shareholders   $ 1.09     $ 1.44     $ 0.96     $ 1.22  
Diluted earnings per share - Sotheby's common shareholders   $ 1.08     $ 1.43     $ 0.95     $ 1.21  

 

APPENDIX B

NON-GAAP FINANCIAL MEASURES

GAAP refers to generally accepted accounting principles in the United States of America. Included in this earnings release and on our earnings call are financial measures presented in accordance with GAAP and also on a non-GAAP basis. Non-GAAP financial measures are important supplemental measures used in our financial and operational decision making processes, for internal reporting, and as part of our forecasting and budgeting processes, as they provide helpful measures of our core operations. These measures allow us to view operating trends, perform analytical comparisons, and benchmark performance between periods. We also believe that these measures may be used by securities analysts, investors, financial institutions, and other interested parties in their evaluation of our performance. The non-GAAP financial measures in this release include Adjusted Net Income and Adjusted Diluted Earnings Per Share.  To the extent applicable, these non-GAAP measures exclude the effect of the following unusual items, as detailed in the accompanying reconciliation tables below:

(i) Charges (credits) related to contractual severance agreements entered into with certain former employees;  
   
(ii) Restructuring charges;  
   
(iii) Accelerated depreciation charges related to certain fixed assets that have been removed from service in
connection with planned enhancements to the York Property;
 
   
(iv) Net credits associated with a series of regional voluntary separation incentive programs that were
implemented in 2015;
 
(v) The loss incurred in connection with the extinguishment of our 2022 Senior Notes in the first quarter of
2018;
 
   
(vi) The write-off of unamortized credit facility fees related to our previous credit agreement, which was
refinanced in the second quarter of 2018;
 
   
(vii) The charge resulting from the concurrent amendments to the York Property Mortgage and the related
interest rate collar in the second quarter of 2017; and
 
   
(viii) The net income tax benefit resulting from the U.S. Tax Cuts and Jobs Act.  

We caution users of our financial statements that amounts presented in accordance with these non-GAAP financial measures may not be comparable to similar measures disclosed by other companies because not all companies and analysts calculate such measures in the same manner.

A reconciliation of net income attributable to Sotheby's to Adjusted Net Income for the three and six months ended June 30, 2018 and 2017 is presented in the following table (in thousands of dollars):

    Three Months Ended
June 30,
  Six Months Ended
June 30,
    2018     2017   2018   2017
Net income attributable to Sotheby's   $ 57,282     $ 76,891     $ 50,760       $ 65,566  
Add: Contractual severance agreement (credits) charges, net of
tax of $49, $0, ($627), and $0
  (148 )       1,998        
Add: Restructuring charges, net of tax of ($532), $0, ($532),
and $0
  1,614         1,614        
Add: Accelerated depreciation charges, net of tax of ($390), $0,
($775), and $0
  1,180         2,348        
Add: Extinguishment of debt, net of tax of $0, $0, ($2,692), and
$0
          8,163        
Add: Write-off of credit facility fees, net of tax of ($922), $0,
($922), and $0
  3,060         3,060        
Add: Voluntary separation incentive programs credits (net), net of
tax of $0, $0, $0, and $63
                (99 )
Add: Charge related to interest rate collar amendment, net of tax of
$0, ($398), $0, and ($398)
      642           642  
Subtract: Net income tax benefit related to the U.S Tax Cuts
and Jobs Act
  4,930  

 
      4,930        
Adjusted Net Income   $ 58,058     $ 77,533     $ 63,013       $ 66,109  
Variance versus prior period - $   $ (19,475)           $ (3,096 )      
Variance versus prior period - %   (25 %)         (5 %)      

The income tax effect of each line item in the reconciliation above of net income attributable to Sotheby's to Adjusted Net Income is computed using the relevant jurisdictional tax rate for each item.

A reconciliation of diluted earnings per share to Adjusted Diluted Earnings Per Share for the three and six months ended June 30, 2018 and 2017 is presented in the following table:

    Three Months Ended
June 30,
  Six Months Ended
June 30,
    2018   2017   2018   2017
Diluted earnings per share   $ 1.08       $ 1.43     $ 0.95       $ 1.21  
Add: Contractual severance agreement (credits) charges, per share             0.04        
Add: Restructuring charges, per share   0.03           0.03        
Add: Accelerated depreciation charges, per share   0.02           0.04        
Add: Extinguishment of debt, per share             0.15        
Add: Write-off of credit facility fees, per share   0.06           0.06        
Add: Voluntary separation incentive program credits (net), per share                    
Add: Charge related to interest rate collar amendment, per share         0.01           0.01  
Subtract: Net income tax benefit related to the U.S Tax Cuts and
Jobs Act, per share
  0.10           0.09        
Adjusted Diluted Earnings Per Share   $ 1.09       $ 1.44     $ 1.18       $ 1.22  
Variance versus prior period - $   $ (0.35 )         $ (0.04 )      
Variance versus prior period - %   (24 %)         (3 %)      
Lauren Gioia | Jennifer Park | Dan Abernethy | Lauren.Gioia@Sothebys.com | Jennifer.Park@Sothebys.com | Dan.Abernethy@Sothebys.com  +1 212 606 7176