Fourth Quarter Dampens Strong Year for Sotheby's

Sotheby's New York headquarters.

Sotheby's said Wednesday that fourth quarter net income declined 25.7 percent, year-over-year, to $71.5 million, largely due to an 11 percent decline in auction and related revenue to $274.9 million.

Auction sales fell 5 percent to $85.2 million during the period, ended Dec. 31, 2011, primarily due to a 5 percent decline in net auction sales over the period resulting from a $171 million, or 46%, decrease in single-owner sales during the quarter, as well as a significant decrease in auction commission margin.

For the year, the international auction house said it had the best financial results in its 268-year history, with the exception of its record year in 2007.

The New York-based company’s strong financial performance was driven by a $57.5 million, or 7 percent, increase in revenues attributable to growth in both auction and private sale commission revenues, the company said. Offsetting the growth in revenues was a higher level of operating expenses due in part to increased staff levels and their associated compensation costs, a higher level of direct costs of services consistent with the volume and composition of auction sales and the cost of investments in Sotheby's strategic initiatives, principally related to the growth of its business in China and enhancing its information technology and online offerings.

Full year results were favorably impacted by a tax benefit of $13.6 million, recognized in 2011 associated with the reversal of a valuation allowance against certain of Sotheby's deferred tax assets, and a pre-tax $7.6 million decrease in net interest expense. Including these factors, net income for 2011 is $171.4 million, a $10.5 million, or 7 percent.

“Sotheby's had great success last year, handling masterpieces, innovating in new markets and building trust based relationships with clients globally and our 2011 financial results reflected those efforts” said Bill Ruprecht, Sotheby’s president and CEO. “Consolidated sales in 2011 were an excellent $5.8 billion, as healthy bidding continued around the world for great works of art. Private sales, an increasingly important part of Sotheby's business, totaled a record $814.6 million, a 65 percent increase.

Ruprecht went on to say that it is continuing with its expansion in its high-growth China business.

“For the first time ever, Sotheby's consolidated sales in Asia reached $1 billion in 2011,” he said. “We have now reached the point where the three geographic engines driving our auction business—the Americas, Europe, and Asia—are contributing to our success in roughly equal proportions. This has allowed us to realize a more diversified revenue stream.”