Sotheby’s filed with securities regulators this morning. Their second quarter net income was down 26% and the overall drop in the first half of 2018 was 23%. The company shows different percentage drops in earnings per share because of the effects of their stock buyback program which still has $133m left to deploy (and the firm indicates it will use the money to support the stock) as well as a very strong balance sheet of $400m in cash, including the $133m.

One of the prime metrics for Sotheby’s success over the last three years has been its steadily improving auction margins. Commission margins were dealt a setback in these results. Sotheby’s offers two explanations. One is that there were a number of large estates on the market which give the seller greater negotiating leverage. But the bulk of the decline was caused by the sale of two guaranteed works that had an out-sized impact. (We will have a discussion of these sales in a later report for AMMpro subscribers.)

Here are some excerpts from Sotheby’s release this morning:

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.

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.