Sotheby's Plunges After Second-Quarter Results Miss Estimates

(Bloomberg) -- Sotheby's plunged the most in nine months after second-quarter earnings missed estimates due to higher expenses.

The New York-based auction house of fine art and collectibles reported a 14 percent decline in profit for the period ended June 30, according to a statement Thursday. Net income slid to $76.9 million from a year earlier even as the company sold the most expensive artwork of 2017 in May -- a Jean-Michel Basquiat painting for $110.5 million.

Chief Executive Officer Tad Smith said on a conference call that the art market “is healthy and efficient but neither frothy nor depressed.” Masterpieces that are fresh to the market result in “eye-popping" prices while lesser works need “realistic” prices to sell.

Like rival Christie's, Sotheby's saw an increase in high-priced lots. The number of works priced at more than $1 million rose 5 percent during the first half of the year. The number of buyers and sellers in that price range increased by 10 percent and 13 percent, respectively, he said. Private sales for the first half rose 34 percent to $333.8 million.

Sotheby's reported adjusted earnings of $1.44 a share, compared to the $1.51 average estimate of five analysts in a Bloomberg survey. Revenue of $314.9 million slightly missed the estimate even as it increased 5 percent.

Expenses rose almost 20 percent. The company attributed this to the projected payment of target bonuses for employees and investment in areas such as technology, digital marketing and specialist expertise. Also with more higher-priced works in the mix, Sotheby's auction commission margin was largely flat for the quarter at 16.3 percent.

The shares slid 8.3 percent to $51.15 at 4 p.m. in New York, the biggest decline since November 2016. On July 25, Sotheby's closed at a record $57.70.

To contact the reporter on this story: Katya Kazakina in New York at kkazakina@bloomberg.net.

To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Alan Mirabella