Sotheby’s (NYSE:BID) today reported its financial results for the
second quarter and six months ended 30 June 2016.
For the three months ended 30 June 2016, Sotheby’s reported net
income of $89.0 million and diluted earnings per share of $1.52
which compares to $67.6 million and $0.96, respectively, a year
ago. Sotheby’s reported Adjusted Net Income* of $88.6 million and
Adjusted Diluted Earnings Per Share* of $1.51 which compares to
$73.1 million and $1.04, respectively, in the prior period. This
represents a 21% increase in Adjusted Net Income*, but a 45%
improvement in Adjusted Diluted Earnings Per Share* due to the
common stock repurchases over the past year. Adjustments between
GAAP and non-GAAP figures are largely the result of $5.8 million of
after-tax leadership transition severance costs in the prior
period.
The comparison to second quarter results of 2015 is impacted by
a 16% decrease in Net Auction Sales reflecting a comparable decline
in the global art market. The effect of lower sales levels is
somewhat mitigated by improved auction commission margin, from
15.5% in the second quarter of 2015 to 16.4% in the current
quarter. The comparison of the current and prior year periods is
also significantly influenced by a change in the timing of the
summer Contemporary Art sales in London, which were held in the
second quarter of 2016 after occurring in the third quarter in
2015. Also favorably impacting the comparison of second quarter
results is lower variable compensation costs ($16.8 million, or
51%, decrease in incentive compensation expense and a $7.3 million,
or 76%, decline in share-based payment expense), a decrease in
inventory losses and a lower effective income tax rate.
“While we would certainly prefer to see a stronger art market,
we are pleased with the progress we have been making on our
strategic initiatives and the beneficial changes to our team and
organization,” said Tad Smith, Sotheby’s President and Chief
Executive Officer. "When the art market improves – and it
certainly will – our company is poised to do very well for
shareholders. Until then, we continue burnishing Sotheby’s
for even more success and being very careful on capital
allocation."
For the six months ended 30 June 2016, Sotheby’s reported net
income of $63.1 million and diluted earnings per share of $1.03
which compares to $72.8 million and $1.04, respectively, in the
prior year first half. This decrease is largely due to the same
factors as affected the second quarter – lower sales volumes
associated with the decline in the art market, partially offset by
increased auction commission margin, lower variable compensation
expenses, a favorable effective income tax rate, and the benefit of
share repurchases on diluted earnings per share.
Chief Financial Officer Mike Goss said, “Given the pronounced
seasonality of the art auction market, we believe investors should
focus on six month results versus prior periods, rather than merely
a single quarter. The comparison of quarterly results can be skewed
by changes in the timing of when auctions occur, such as the summer
Contemporary sales in London. Looking at the first six months of
this year, investors will have a realistic view of the current
market, but they will also see our improved auction commission
margins, meaningful cost control, and the impact of our ongoing
share repurchase program.” Goss also noted that the Company had
55.1 million common shares outstanding at 30 June 2016, a 21%
reduction in the past twelve months.
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 reconciliation to the most
comparable GAAP amount.
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-Q (and/or 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
as well as an accompanying slide presentation will be available at
http://investor.shareholder.com/bid/events.cfm.
Sotheby’s will host a conference call at 9:00 AM EDT on 8 August
2016, to discuss its second quarter 2016 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 45957209. 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 nine 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 in real-time 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
private sale opportunities in more than 70 categories, including
S|2, the gallery arm of Sotheby’s Contemporary Art department, and
two retail businesses, Sotheby’s Diamonds and Sotheby’s Wine.
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).
For More News from Sotheby’s
News & Video: http://www.sothebys.com/en/news-video.html
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www.instagram.com/sothebys Facebook: www.facebook.com/sothebys
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APPENDIX A
SOTHEBY’SCONDENSED
CONSOLIDATED INCOME
STATEMENTS(UNAUDITED)(Thousands
of dollars, except per share data)
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, 2016 |
|
June 30, 2015 |
|
June 30, 2016 |
|
June 30, 2015 |
Revenues: |
|
|
|
|
|
|
|
|
Agency commissions and fees |
|
$ |
273,764 |
|
|
$ |
310,377 |
|
|
$ |
354,829 |
|
|
$ |
438,259 |
|
Inventory sales |
|
5,281 |
|
|
7,005 |
|
|
12,075 |
|
|
19,988 |
|
Finance |
|
14,750 |
|
|
11,970 |
|
|
29,505 |
|
|
24,657 |
|
License fees |
|
2,897 |
|
|
2,468 |
|
|
5,059 |
|
|
4,442 |
|
Other |
|
1,973 |
|
|
186 |
|
|
3,728 |
|
|
335 |
|
Total revenues |
|
298,665 |
|
|
332,006 |
|
|
405,196 |
|
|
487,681 |
|
Expenses: |
|
|
|
|
|
|
|
|
Agency direct costs |
|
31,243 |
|
|
32,730 |
|
|
40,782 |
|
|
44,569 |
|
Cost of inventory sales |
|
7,381 |
|
|
16,989 |
|
|
18,119 |
|
|
28,702 |
|
Cost of finance revenues |
|
4,153 |
|
|
3,874 |
|
|
8,547 |
|
|
7,262 |
|
Marketing |
|
4,408 |
|
|
4,748 |
|
|
9,421 |
|
|
8,808 |
|
Salaries and related |
|
75,227 |
|
|
108,182 |
|
|
143,398 |
|
|
171,112 |
|
General and administrative |
|
40,909 |
|
|
44,731 |
|
|
76,585 |
|
|
79,460 |
|
Depreciation and amortization |
|
5,492 |
|
|
4,781 |
|
|
10,788 |
|
|
9,563 |
|
Voluntary separation incentive
programs (net) |
|
(231 |
) |
|
— |
|
|
(538 |
) |
|
— |
|
CEO separation and transition
costs |
|
— |
|
|
43 |
|
|
— |
|
|
4,232 |
|
Restructuring charges (net) |
|
— |
|
|
(530 |
) |
|
— |
|
|
(889 |
) |
Total expenses |
|
168,582 |
|
|
215,548 |
|
|
307,102 |
|
|
352,819 |
|
Operating income |
|
130,083 |
|
|
116,458 |
|
|
98,094 |
|
|
134,862 |
|
Interest income |
|
275 |
|
|
630 |
|
|
671 |
|
|
759 |
|
Interest expense |
|
(7,638 |
) |
|
(9,074 |
) |
|
(15,184 |
) |
|
(17,735 |
) |
Other income
(expense) |
|
374 |
|
|
245 |
|
|
421 |
|
|
(1,714 |
) |
Income before taxes |
|
123,094 |
|
|
108,259 |
|
|
84,002 |
|
|
116,172 |
|
Equity in earnings of
investees |
|
191 |
|
|
1,982 |
|
|
587 |
|
|
3,126 |
|
Income tax expense |
|
34,355 |
|
|
42,789 |
|
|
21,569 |
|
|
46,713 |
|
Net income |
|
88,930 |
|
|
67,452 |
|
|
63,020 |
|
|
72,585 |
|
Less: Net loss attributable to
noncontrolling interest |
|
(34 |
) |
|
(120 |
) |
|
(60 |
) |
|
(189 |
) |
Net income attributable
to Sotheby's |
|
$ |
88,964 |
|
|
$ |
67,572 |
|
|
$ |
63,080 |
|
|
$ |
72,774 |
|
Basic earnings per
share - Sotheby’s common shareholders |
|
$ |
1.54 |
|
|
$ |
0.97 |
|
|
$ |
1.04 |
|
|
$ |
1.04 |
|
Diluted earnings per
share - Sotheby's common shareholders |
|
$ |
1.52 |
|
|
$ |
0.96 |
|
|
$ |
1.03 |
|
|
$ |
1.04 |
|
Weighted average basic
shares outstanding |
|
57,104 |
|
|
69,332 |
|
|
60,063 |
|
|
69,211 |
|
Weighted average
diluted shares outstanding |
|
57,712 |
|
|
69,884 |
|
|
60,682 |
|
|
69,794 |
|
Cash dividends declared
per common share |
|
$ |
— |
|
|
$ |
0.10 |
|
|
$ |
— |
|
|
$ |
0.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APPENDIX B
NON-GAAP FINANCIAL MEASURES
GAAP refers to generally accepted accounting principles in the
United States of America. Included in this earnings release are
financial measures presented in accordance with GAAP and also on a
non-GAAP basis. The non-GAAP financial measures presented in this
earnings release are: Adjusted Net Income and Adjusted Diluted
Earnings Per Share. Sotheby's definition of these non-GAAP
financial measures is provided in the following paragraphs.
Management cautions users of Sotheby's financial statements that
amounts presented in accordance with its definitions of 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.
Adjusted Net Income is defined as Net Income Attributable to
Sotheby's, excluding the after-tax impact of charges related to
certain contractual severance agreements (net, recorded within
Salaries and Related Costs), leadership transition severance costs
(recorded within Salaries and Related Costs), charges related to
Sotheby's voluntary separation incentive programs (net), CEO
Separation and Transition Costs, and Restructuring Charges (net).
Adjusted Diluted Earnings Per Share is defined as Diluted Earnings
Per Share excluding the per share impact of charges related to
certain contractual severance agreements (net, recorded within
Salaries and Related Costs), leadership transition severance costs
(recorded within Salaries and Related Costs), charges related to
Sotheby's voluntary separation incentive programs (net), CEO
Separation and Transition Costs, and Restructuring Charges
(net).
Adjusted Net Income and Adjusted Diluted Earnings Per Share are
important supplemental measures used by the Board of Directors and
management in their financial and operational decision making
processes, for internal reporting, and as part of Sotheby's
forecasting and budgeting processes, as they provide helpful
measures of Sotheby's core operations. These measures allow the
Board of Directors and management to view operating trends, perform
analytical comparisons, and benchmark performance between periods.
Management also believes that these measures may be used by
securities analysts, investors, financial institutions, and other
interested parties in their evaluation of Sotheby's.
The following is a reconciliation of Net Income Attributable to
Sotheby's to Adjusted Net Income for the three months ended June
30, 2016 and 2015 (in thousands of dollars):
|
|
Three Months Ended June 30, |
|
|
2016 |
|
2015 |
Net income attributable
to Sotheby's |
|
$ |
88,964 |
|
|
$ |
67,572 |
|
Add: Contractual
severance agreement charges (net), net of tax of $152 and $0 |
|
(232 |
) |
|
— |
|
Add: Leadership
transition severance costs, net of tax of $0 and $3,743 |
|
— |
|
|
5,758 |
|
Add: Voluntary
separation incentive programs charges (net), net of tax of $90 and
$0 |
|
(141 |
) |
|
— |
|
Add: CEO separation and
transition costs, net of tax of $0 and $75 |
|
— |
|
|
118 |
|
Add: Restructuring
charges (net), net of tax of $0 and |
|
— |
|
|
(387 |
) |
Adjusted Net Income |
|
$ |
88,591 |
|
|
$ |
73,061 |
|
Variance versus prior period -
$ |
|
$ |
15,530 |
|
|
|
Variance versus prior period -
% |
|
21 |
% |
|
|
|
|
|
|
|
|
The income tax effect of each line item in the reconciliation of
Net Income Attributable to Sotheby's to Adjusted Net Income is
computed using the relevant jurisdictional tax rates for each
item.
The following is a reconciliation of Diluted Earnings Per Share
to Adjusted Diluted Earnings Per Share for the three months ended
June 30, 2016 and 2015:
|
|
Three Months Ended June 30, |
|
|
2016 |
|
2015 |
Diluted earnings per
share |
|
$ |
1.52 |
|
|
$ |
0.96 |
|
Add: Contractual
severance agreement charges (net), per share |
|
(0.01 |
) |
|
— |
|
Add: Leadership
transition severance costs, per share |
|
— |
|
|
0.08 |
|
Add: Voluntary
separation incentive program charges (net), per share |
|
— |
|
|
— |
|
Add: CEO separation and
transition costs, per share |
|
— |
|
|
0.01 |
|
Add: Restructuring
charges (net), per share |
|
— |
|
|
(0.01 |
) |
Adjusted Diluted Earnings Per
Share |
|
$ |
1.51 |
|
|
$ |
1.04 |
|
Variance versus prior period -
$ |
|
$ |
0.47 |
|
|
|
Variance versus prior period -
% |
|
45 |
% |
|
|
|
|
|
|
|
|
New York
Lauren Gioia
Lauren.Gioia@Sothebys.com
Jennifer Park
Jennifer.Park@Sothebys.com
+1 212 606 7176
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