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Sotheby’s Stock Drops After Imp/Mod Auction Falls Short

On Nov. 9, two days after a disappointing sale of Impressionist and modern art that pushed its stock down at least 30 percent, Sotheby’s released its third-quarter and nine-month earnings.

NEW YORK—On Nov. 9, two days after a disappointing sale of Impressionist and modern art that pushed its stock down at least 30 percent, Sotheby’s released its third-quarter and nine-month earnings.

For the third quarter, the auction house reports, operating revenues totaled $85.1 million—up $27.7 million, or 48 percent, from the previous third quarter, due to higher auction commission revenues and private sales commissions. At the same time, Sotheby’s said, its loss from continuing operations had narrowed to $20.9 million, or 33 cents a share, from $30.4 million, or 49 cents a share, in the same period a year ago.

Sotheby’s noted that the third-quarter results include losses on “certain auction guarantees” extended to sellers in the Impressionist and modern art sale: “The pretax $14.6 million in losses related to these auction guarantees is reflected” in the third quarter since the guarantees were outstanding as of Sept. 30. Said CEO Bill Ruprecht: “With respect to auction guarantees, we have made money on our overall guarantee portfolio year after year; and despite the losses recorded in the third quarter, it is our current expectation that we will make money on an aggregate basis this year as well.” As Sotheby’s points out, the third quarter is typically a loss period for the auction house since major sales each year in May and November fall in the second and fourth quarters, respectively.

For the first nine months of 2007, Sotheby’s reports, operating revenues were a record $572 million, up 42 percent, or $170.3 million, from the previous year. Income from continuing operations in the first nine months, a key measure of profitability, totaled $110.7 million. Sotheby’s notes, however, that this figure was significantly impacted by a onetime benefit of $20 million related to an insurance payment for gallerist Robert Noortman. Sotheby’s acquired Noortman Master Paintings in 2006, and the dealer died suddenly last January. Excluding this and other one-time charges, income from continuing operations for the first nine months was $102.4 million, or $1.56 cents a share. Since September the stock had been trading well above $50. As ARTnewsletter went to press, shares of Sotheby’s had closed at $36.46, down 4 percent, on the New York Stock Exchange.

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