Sotheby’s Posts Surprise Loss, Will Slim Down to Restore Profit

A flag flies outside Sotheby's auction house in London

After Sotheby’s reported its worst annual financial results in five years, executives at the auction house had one encouraging message for investors: A slimmed-down Sotheby’s can make money.

The evidence wasn’t obvious yesterday. The world’s largest auctioneer by sales said it lost $8.45 million in the fourth quarter as revenue plunged by more than half. Net income for the full year was $28.3 million, an 87 percent decline from 2007. It was the New York-based company’s smallest annual profit since 2003, when it lost $20.7 million.

The global financial crisis had a “major impact” in the fourth quarter as virtually every Sotheby’s auction around the world suffered declines, Chief Executive Officer William Ruprecht said in a statement.

The company said it’s cutting 15 percent of its workforce. With 1,638 employees at the end of 2008, that means about 245 people lose jobs.

With his company’s stock near 20-year lows, Ruprecht at times sounded impatient on a conference call with analysts. He said Sotheby’s can be profitable with auction sales at less than half its 2007 peak of $4.6 billion.

Asked to clarify his comment, Ruprecht said: “That’s exactly what I said. If you want me to say it again, I’ll say it again.”

Chief Financial Officer William Sheridan explained in an interview that “even if auction sales fell off a cliff, i.e., a 50 percent decline, we should make money.”

Losses From Guarantees

Sotheby’s said it lost $60 million last year extending guarantees to sellers to win business. It has all but ended that practice, reducing its risk. Its guarantees outstanding as of Feb. 18 totaled $1 million, down from $149 million at the end of 2007.

Salaries and related costs declined by $53.6 million, or 18 percent, for the year. Sheridan declined to comment on Ruprecht’s pay, which totaled $10.3 million in 2007, according to an April filing.

The net loss for the quarter ended Dec. 31 equaled 13 cents a share, compared with net income of $102.4 million, or $1.55, a year earlier. Revenue plunged 52 percent to $166.2 million.

The company recorded “restructuring charges” of $4.3 million for job reductions in North America.

Earlier this month, Standard & Poor’s warned that Sotheby’s credit rating may be cut to junk as the 265-year-old company’s revenue falls and its leverage increases amid losses from guarantees on artworks that failed to sell at auctions.

Writing Down Assets

Fourth-quarter results include a $13.2 million “impairment loss” in the company’s dealer segment to write down the value of goodwill and intangible assets. Sotheby’s was expected to earn 20 cents a share in the quarter, according to the average estimate of five analysts in a Bloomberg survey.

Before the loss was announced, the company’s shares fell 35 cents to $6.77 in regular U.S. trading. That’s their lowest close since 2003, when they dropped as low as $6.49. The shares rose 3 cents to $6.80 in after-hours trading.

Ruprecht and Sheridan said they were encouraged by recent results in Europe. At Christie’s in Paris this week, Yves Saint Laurent’s leather armchair sold for $28 million, while two mid- 18th-century bronze sculptures went for $40 million.

Published in: on February 27, 2009 at 11:03 am  Leave a Comment  

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