Sotheby's Earnings Squeezed, But the Company Sees a Silver Lining in Global Economic Decline

Sotheby's Earnings Squeezed, But the Company Sees a Silver Lining in Global Economic Decline
Edvard Munch's "The Scream" is auctioned at Sotheby's, May 2012
(Photo by Mario Tama/Getty Images)

When it comes to reading the tea leaves of the international art market, the quarterly earnings report of publicly traded Sotheby’s is one of the best indicators around. So what did yesterday's report on the second quarter and first half of 2012 reveal? Income for the spring season is down by a full third from the second quarter of 2011. The auction house brought in $85.4 million in Q2, with total revenues of $303.9 million (that’s down 18 percent from last year’s figure). On the earnings conference call, company CEO William Ruprecht and CFO William Sheridan attributed the decline to a weak global economy and fewer single-owner sales than in the record-breaking spring 2011 season.

While the auction market didn’t soar this past spring in the same way that it did the year previously, there were still some stellar results logged. However, Sotheby’s noted that it had issues with “competitive pressures to win high-level consignments” in the earnings call. In other words, this season it got beat by its number-one competitor, Christie’s — quite often, it seems. There were plenty of record-setting prices achieved in the spring, but other than the smashing success of Edvard Munch’s “The Scream,” at the New York Impressionist and modern art sale in May, the biggest lots were sold at Christie’s, which announced in July that it did $3.5 billion in sales in the first six months of the year.

That said, don’t count Sotheby’s out for the rest of the year. While a tough economy can create some issues in demand, it also means increased supply, which is often the more difficult part of the equation. On the call, the auction house said it expects consignments from people whose “margin of liquidity eroded over the last four years of volatility.” The longer the economy is weak, the more people who need cash — that can mean great things for those in the auction house business.

Some bright spots in the earnings are Sotheby’s non-auction revenue streams — financial services (mostly art lending) and private sales, which continue to be an important part of the business. Christie’s is also seeing skyrocketing private sales, but it does not have a financial services division.