Sotheby’s First-Quarter Loss Narrows as Art Sales Increase

May 07, 2014 4:14 pm ET

(Updates with closing share price in sixth paragraph.)

May 7 (Bloomberg) -- Sotheby’s, the auction house that ended a bitter proxy fight this week with activist investor Daniel Loeb by appointing him to its board, reported a smaller first-quarter loss as art sales increased.

The net loss narrowed to $6.1 million, or 9 cents a share, from $22.3 million, or 33 cents a share, a year earlier, the New York-based company said today. Earnings per share beat the 17- cent average estimate of five analysts in a Bloomberg survey.

Sotheby’s attributed the results to an increase in sales of Impressionist and contemporary art. The company said its consolidated net sales increased 32 percent to $1 billion. The auction house typically posts a small loss or profit in the first and third quarters. The biggest sales are held in the second and fourth quarters.

Its marquee Impressionist and modern art evening sale in New York is set for tonight and the contemporary-art sale is scheduled for May 14. Tonight’s sale has an estimated range of $264 million to $383 million and includes 14 works by Pablo Picasso, led by a 1932 painting of his lover Marie-Therese that has an estimate of $15 million to $20 million. Next week’s contemporary sale, which will include works by Jeff Koons and Jean-Michel Basquiat, is expected to tally $410 million to $578 million.

Middle Market

The company reported revenue of $156.8 million, up from $101.7 million in the year-ago period.

Sotheby’s fell 4.7 percent to $41.55 today in New York trading. The shares have declined 14 percent this year including reinvested dividends.

Chief Executive Officer William Ruprecht, in a conference call today, said the company sees “real opportunity” to expand in the middle market, or sales of artworks priced $50,000 to $2 million.

Sotheby’s on May 5 agreed to appoint Loeb, founder of hedge-fund firm Third Point LLC, and two of his candidates to its board of directors, ending a closely watched proxy fight between the auction house and its largest shareholder.

In the call, Ruprecht said he was looking forward to working with the new directors, who will bring “fresh viewpoints.” Loeb for months had criticized Ruprecht and the company’s expenses, internal operations and “deteriorating” competitive position.

Board Members

“Sotheby’s made significant progress in the quarter with expense control, especially addressing specific line items such as marketing and general corporate expense, which is certainly a credit to existing management,” Rommel Dionisio, an analyst with Wedbush Securities in New York, said in an e-mail. He has an outperform rating on Sotheby’s.

Sotheby’s and Third Point said in a joint statement that Loeb and his two nominees, Olivier Reza and Harry J. Wilson, joined the board. Sotheby’s annual shareholder meeting, set for yesterday, will be rescheduled for later this month.

The parties also agreed to cap Third Point’s stake in the company, currently at 9.6 percent, at 15 percent. The agreement was a win for the fund manager who for months had criticized Ruprecht and the company’s executive compensation plan, internal operations and “deteriorating” competitive position.

Ruprecht said on the call today that Sotheby’s paid $5.7 million in the first quarter for expenses related to the proxy fight. Sotheby’s expects a special charge of $12 million to $15 million in the second quarter for expenses related to the fight, with as much as $10 million of that amount for reimbursements for Third Point’s expenses.