NEW YORK, NY.- Sotheby's
reported financial results for the second quarter and first half ended 30 June 2014.
Bolstered by continued strength in the global art market and by excellent spring sales worldwide, Sotheby's achieved a 42% increase in adjusted operating income* and a 20% increase in operating income in the first half of 2014.
Sotheby's net auction sales increased 24% to $2.7 billion on strong global sales during the period - particularly in Hong Kong and London - which led to an 18% increase in auction commission revenues to $403.8 million as compared to the prior year.
"Sotheby's is seeing success across categories and around the world," said Chairman, President and Chief Executive Officer Bill Ruprecht. "The number of buyers at all levels, the amount of property we were entrusted to sell, and the prices we achieved are all up significantly this year. We sold 487 lots at over $1 million, more than any other art market participant. We are demonstrating that the art market is robust and we're serving new and existing clients who trust Sotheby's to deliver superior expertise and market knowledge and attractive results.
"The fact that 26% of our buyers in the first half of the year were first-time clients shows we are engaging with a new generation of collectors, and that's exciting. We're looking forward to building on the successes of these six months with a number of exceptional sales this fall and with our new eBay partnership that will showcase our New York auctions to an unrivaled global online audience of millions of potentially new collectors," he added.
In the first half of 2014, adjusted expenses* increased 4% to $301.8 million, due to higher salaries and related costs, consistent with prior guidance and the increased earnings for the period. These factors were partially offset by lower marketing and general and administrative expenses, reflecting management's ongoing efforts to reduce costs in those areas. In the first half of 2014, total expenses increased 22% due to the cost of Principal revenues attributable to a series of profitable transactions completed in the period ($32.0 million) and special charges ($24.3 million).
In July, Sotheby's announced a restructuring plan that will reallocate resources to collecting categories and regions with the highest potential for growth and to further reduce costs. "We are engaging in this reallocation of staff and resources to achieve costs savings and to focus our resources and people on areas of the Company with the greatest growth opportunities," said Executive Vice President and Chief Financial Officer Patrick McClymont.
Adjusted net income* increased 22% to $84.9 million for the first half, resulting in adjusted diluted earnings per share* of $1.20 as compared to $1.00 per share in the prior year. The comparison of adjusted net income* to the prior period is significantly influenced by an increase in Sotheby's effective tax rate from 23% to 39%, primarily due to the accrual of U.S. taxes on the earnings of foreign subsidiaries in 2014 and the impact of a non-recurring $6.8 million tax benefit recorded in the second quarter of 2013 related to a loss on the tax basis in a foreign subsidiary.
Net income for the first half increased 3% to $71.5 million, resulting in diluted earnings per share of $1.01. First half net income was adversely impacted by after-tax special charges of $13.3 million.
For the second quarter of 2014, adjusted operating income* increased 12% from the prior year. In the quarter, a 19% increase in net auction sales resulted in a $35.5 million (13%) increase in auction commission revenues as auction commission margin decreased from 15.9% to 15.2%, primarily due to competitive conditions and sales mix. In the second quarter of 2014, operating income decreased $2.9 million (2%) due to special charges of $18.6 million.
Adjusted net income* for the second quarter of 2014 decreased 4% to $87.8 million, resulting in Adjusted diluted earnings per share* of $1.26, as compared to $1.33 per share in the prior year, largely due to the increase in Sotheby's effective tax rate.
Net income for the second quarter decreased $14.1 million (15%), resulting in diluted earnings per share of $1.11. Second quarter net income was adversely impacted by after-tax special charges of $10.2 million.
Second and Third Quarter 2014 Sales
London's June Impressionist and Modern Art sales brought $247.3 million, near the high end of the pre-sale estimate and with a number of exceptional prices. The highlight of the sale was Claude Monet's Nymphéas which brought $54.1 million and the second highest price for the artist at auction. Piet Mondrian's quintessential masterpiece, Composition with Red, Blue and Grey, which appeared at auction for the first time in our sale brought $25.9 million. The evening sale was 91.3% sold by lot and two-thirds of works sold for above their high estimate.
The following week, our London Contemporary Art sales realized $184.6 million, near the high end of the pre-sale estimate as well. Works by top British artists achieved record prices, with Bacon and Doig highlighting the results. Francis Bacon's Three Studies for Portrait of George Dyer brought the highest price of the Evening sale with $45.4 million, a record for a small-scale triptych by the artist and surpassing the pre-sale estimate of $34 million by a wide margin. Also, a new auction record was established for Peter Doig when his Country-rock (wing mirror) sold for $14.4 million. 88% of the sold lots of the Evening sale achieved prices at or above their pre-sale estimates.
Closing out the London summer sales season were the July Old Master and British Paintings sales series which totaled a record $127.4 million for the week, surpassing the pre-sale estimate of $73/108 million by a wide margin. The top lot of the series was George Stubbs' Tygers at Play which brought $13.2 million, above the pre-sale high estimate of $10 million. 97% of the works sold achieved prices within or above the pre-sale high estimate and 19 auction records were attained during the week including those for a drawing by Botticelli and works by Giovanni da Rimini and Jan Brueghel the Elder.
We are excited to offer property from the Collection of Mrs. Paul Mellon in a series of auctions this autumn in New York. The more than 2,000 individual items together have an estimated value in excess of $100 million and include exceptional fine art, jewelry, furniture and decorative artworks. Proceeds from the sales will benefit The Gerard B. Lambert Foundation, a charitable entity established by Mrs. Mellon in memory of her father. The Foundation supports horticultural and educational endeavors.
From 4th to 8th October, Sotheby's Hong Kong will hold its Autumn Sale series featuring Chinese Ceramics & Works of Art, Fine Chinese Paintings, Contemporary Literati, 20th Century Chinese Art, Contemporary Asian Art, Modern & Contemporary Southeast Asian Paintings, Jewellery, Watches and Wine. The five-day sales series will highlight a Xuande "Fish" Stemcup from the Chunzaizhai Collection (est. in excess of HK$40 million), a 35.72-carat step-cut Colombian emerald ring (est. HK$32/38 million) and a 26.27-carat fancy brown yellow diamond, conch pearl and diamond Ballerina Butterfly brooch (est. HK$6/7 million), co-designed by renowned Asian jewellery designer Cindy Chao and actress, entrepreneur, and philanthropist Sarah Jessica Parker to benefit the New York City Ballet.
Sotheby's New York will offer more than 400 pieces of fine English and European furniture and decoration from New York's legendary Kentshire Galleries in a dedicated auction on 18th October. The impressive range of furniture and objects carries estimates spanning from $100 to over $100,000, with the majority of works being sold without reserve - a unique opportunity for new and established collectors and designers to acquire the very best from the celebrated connoisseurs.
On 11th November Sotheby's Geneva will present The Henry Graves Supercomplication. Made by Patek Philippe in 1933, this masterpiece of horology is the most famous watch in the world and the most complicated watch ever made completely by human hand. Its reappearance on the market, 15 years after its record sale, will coincide with Patek Philippe's 175th anniversary celebrations and will be a fitting tribute to the genius of the Swiss manufacturer. The watch will be offered in Sotheby's Geneva sale of Important Watches with an estimate in excess of CHF15 million.
On 11th and 12th December Sotheby's New York will present 175 Masterworks To Celebrate 175 Years Of Photography: Property from Joy of Giving Something Foundation, a single owner sale of the most significant collection of photographs in private hands today. The collection was meticulously put together over decades by Howard Stein (1926-2011), one of photography's greatest collectors, whose vision and keen understanding of the medium informed his purchases. The pre-sale estimate of $13/20 million is the highest ever for a Photographs auction.
* Non GAAP financial measure. See Appendix for details.
Note: Estimates do not include buyer's premium and prices achieved include the hammer price plus buyer's premium.