Sotheby’s has released some highlights from its earnings this morning that include the news of layoffs and tax charges. Overall, the central business of auctioning art was very strong in the first half of 2014. You can download the releases yourself at the end of the post:
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.
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 cost 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.