Sotheby’s 2018 Sales = $6.4bn, Private Sales up 37%

Sotheby’s has released its 2018 earnings. Here are the highlights the company put out this morning before the earnings call. We’ll have more detail after the call and once we’ve read through the company’s filings. Those reactions will be available to AMMpro and AMMdaily subscribers over the coming days.

In the meantime, the highlights are continuing strength in private sales, up 37% and some further progress in generating low-touch online-only sales (though still a small fraction of the company’s overall sales—3.5%.) Perhaps most important, the company has now been able to buy back 30% of the outstanding shares in the firm with the company’s own cash. Sotheby’s bought those shares at a 17.5% discount to the current stock price which means the two primary shareholders have increased their stake in the firm by 30% while using none of their own money. The top ten shareholders control two-thirds of the company stock.

For the year ended December 31, 2018, Sotheby’s reported net income of $108.6 million, or $2.09 per diluted share, as compared to $118.8 million, or $2.20 per diluted share, in the prior year. Excluding certain items in both periods, Adjusted Net Income* was $128.9 million and Adjusted Diluted Earnings Per Share* was $2.48, as compared to Adjusted Net Income* of $121.7 million, and Adjusted Diluted Earnings Per Share* of $2.25 in the prior year.

Driven in part by 37% growth in Private Sales to $1.02 billion, the Company’s Consolidated Sales increased 16% to reach $6.4 billion in 2018. This growth contributed to a 9% improvement in Operating Income to $181.3 million, and an 18% improvement in Adjusted Operating Income* to $198.1 million, when compared to the prior year.

“As a result of our entire team’s efforts and the continued trust placed in Sotheby’s by our clients, I am pleased to report that in 2018 we fulfilled our objective to substantially improve upon last year’s good results,” commented Chief Executive Officer Tad Smith, continuing, “we have the potential to deliver even better results in 2019 by improving technology and processes for clients, though, as always, market conditions will be a factor.” 2018 Highlights

Consolidated Sales – which combine Aggregate Auction Sales, Private Sales and sales from Inventory – increased 16% to $6.4 billion when compared to prior year.

Adjusted Operating Income* improved 18% to $198.1 million in 2018.

In 2018, Private Sales grew 37% to $1.02 billion, when compared to the prior year, representing a five-year high and nearly double the level achieved in 2016.

Aggregate Auction Sales increased 15% to reach $5.3 billion, compared to the prior year.

Aggregate Auction Sales in Hong Kong reached approximately $1 billion – the highest total in Sotheby’s 45-year history in Asia.

Aggregate Auction Sales in key categories improved from 2017 to 2018: Watches (nearly 57%), Wine (nearly 41%), Old Master Paintings (33%), Contemporary Art (14%), Chinese Works of Art (14%), Impressionist and Modern Art (nearly 9%).

Sales to online buyers – which include items from our live auctions purchased online, all online-only sales, as well as purchases made on our retail websites, Sotheby’s Home and Sotheby’s Wine – totaled $220.4 million, a 24% increase compared to the prior year.

37% of all lots sold at Sotheby’s in 2018 were purchased online.

In the fourth quarter of 2018, net income increased 12% to $85.7 million and diluted earnings per share increased 20% to $1.72.

Excluding certain items in both periods, fourth quarter Adjusted Net Income* increased 10% to $86.8 million and Adjusted Diluted Earnings per Share* increased 18% to $1.74.

In 2018, Adjusted Return on Equity* was 24.4% as compared to 21.7% in 2017, both significant improvements from the average of just over 15% between 2014 and 2016.

In the three years between 2016 and 2018, Sotheby’s has repurchased approximately 20.6 million shares for $689.1 million at an average price of $33.49.

Current total shares outstanding are 46.4 million, a 30% decrease since the end of 2015.

As of December 31, 2018, based on our long-term debt balance of $638.8 million, the Company’s Adjusted Leverage Ratio* was 3.1x and the Company had $578 million in available revolving credit facility borrowings.