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At the time of going to press, shares in the company were trading at just over $38 per share on the New York Stock Exchange, having fallen from $41.95 per share shortly before the figures were released.

The company's new chief executive Tad Smith admitted the results were "rather bumpy" although he said they were largely explained by a shift in the sales calendar (the London Contemporary art auction series took place in the third quarter rather than the second quarter this year) and unfavourable exchange rate fluctuations.

"The company delivered strong sales to date in 2015," said Mr Smith, "but some anomalies in the second quarter depressed the bottom line."

'Inventory Loss'

One of these anomalies was the cost incurred on a painting which Sotheby's had acquired earlier in the year. Classified as an 'inventory loss', it was one of two works that "were purchased together for our Spring 2015 sales" according to a summary that accompanied the results.

The summary stated that the "while the investment was profitable overall, a loss on one of the paintings was recorded at the time of the sale in the second quarter of 2015". However, the "revenue and profit on the other painting" has not yet been recognized as Sotheby's have yet to receive payment from the buyer (it is expected later this year).

Speculation on the identity of the paintings in question has centred on works in their Contemporary art evening sale in New York in May. Three works carried symbols in the catalogue denoting that Sotheby's had an ownership interest in the lot.

One was Gerhard Richter's Abstraktes Bild (1992) which was offered with an unpublished estimate in the region of $30m. It sold at $25m to an Asian private buyer on the phone. Another was Sigmar Polke's Dschungel (Jungle), again offered with an unpublished estimate, in this case in the region of $20m. This latter work drew more bidding, selling at $24m to a US private buyer and making an auction record for artist.

A work from CY Twombly's Untitled (New York City) series also carried the 'ownership interest' symbol. It was estimated at $5-7m but did not sell on the night.

Sotheby's are also believed to have taken a hit at the same Contemporary art sale when Roy Lichtenstein's The Ring (Engagement) from 1962 was knocked down to an Asian collector on the phone for 'only' $37m. One of the lots which the auctioneers had backed with a guaranteed price, it was offered with an unpublished estimate believed to be in the region of $50m.

The results sheet showed that unsuccessful auction guarantees had cost Sotheby's $8m in the second quarter.

'CEO Separation'

The results also listed revenues and costs not just for the second quarter but also for the first six months of the year to date.

Key details included a significant increase in Sotheby's financial services revenue (up to $24.7m, a 78% increase on the equivalent period last year), as well as the full cost of 'CEO separation and transition' - effectively meaning the replacement of Bill Ruprecht with Tad Smith. This latter figure was listed as a cool $4.23m


Sotheby's second quarter results highlights


Three month period to 30 June 2015 compared with equivalent period for 2014:

• Net Auction Sales: 1.86bn, a decrease of 6%

• Total revenues: $332m, a decrease of 1%

• Adjusted operating profit: $125m, a decrease of 16%

• Foreign currency exchange rates: market fluctuations, mainly the strengthening dollar, contributed $12.4m to the fall in revenue.

• Private sales commissions: increased by $5.4m (32%) due to the completion of a number of high-value transactions.

• Auction Commission Margin: increased by 0.3% (from 15.2% to 15.5%), primarily due to the changes made in the buyer's premium rate structure in February 2015. This margin would have been higher but it was partially offset by a higher level of guarantees.

• Auction sales of Contemporary Art: $1.26bn, an increase of 18% with a 16% increase in new bidders.

• Auction sales of Jewelery and Watches: 39% increase in new bidders.

• Online bidders: 49% increase in number of bidders who competed in sales across 46 categories. This translated into a nearly 38% increase in the value of successful bids.*

• Asian buying: 35% increase overall purchases, with greater Asian bidding in more than 20 sales categories including Old Master Paintings, British Pictures and 20th Century Design. *


* Note: these figures are for the first half of 2015, rather than the latest quarter.


ATG Comment

Auctioneers are known to take a hit when lots they back with guaranteed prices fail to meet expectations - this practice cost Sotheby's $8m in the second-quarter of 2015 alone. But it was more unusual here to see the saleroom make a loss on a work that the auctioneers already paid-out for in advance of an auction.

Classified as an 'inventory loss', the picture in question was presumably the main cause of the $11m variance between 'inventory sales' income and 'cost of inventory sales' in the company's latest results.

Auctioneers are often said to be behaving like dealers these days, but how many dealers could survive racking up such a short-term deficit on a single painting? It is the sheer size of the modern-day global auction house that acts as a buffer for this risk-taking.