Sotheby's swings to first-quarter profit on higher commissions

Sotheby's returned to profit in its first quarter under new chief executiveTad Smith, with the auctioneer's bottom line boosted by higher commission revenues on multi-million dollar art works going under the hammer.

The auctioneer of art and collectibles said net income was $5.2m, or 7 cents a share in the quarter ended March 31, up from a loss of $6.1m, or 9 cents a share, in the same period last year.

Auction commission revenue rose 8 per cent, which Sotheby's said was due to a change in the premiums shared between the auction house and the consigners.

However, revenue slipped 0.7 per cent to $155.7m on the same period last year. Revenue from acting as agent for sellers at auction rose 4 per cent to $127.9m, but revenue from its principal division, where activities include the sale of artworks that have been purchased opportunistically by Sotheby's, halved to $13m.

Prices and demand for art works, jewellery and fine wines have been soaring to new heights, but Sotheby's has struggled to keep up with arch-rival Christie's in recent years.

On Monday, Mr Smith said the auctioneer would target a clear demographic as part of its push to ongoing profitability: the 170,000 people in the world worth $30m, with $21tn in wealth to invest in the art world.

Mr Smith, an art world outsider and former head of Madison Square Garden, replaced Bill Ruprecht as CEO in March after the auctioneer came under attack from activist investors Dan Loeb and Marcato Capital Management LP who pushed for modernisation and greater shareholder returns.

"Our company delivered significant profit growth in the quarter as compared to last year through strong sales in old masters, impressionist and modern and contemporary art," Mr Smith said.

He said he wanted to focus on new areas of growth for the auction house, including private sales, loans and middle-market works.

Mr Smith also stressed the need to invest further in technology after Sotheby's unveiled a partnership with eBay earlier this year. He hinted that the use of guarantees - when the auction house agrees to pay the seller an undisclosed minimum price whatever the outcome of the sale - could be reduced.

"There are guarantees that we have made on consignments that do not perform in auctions the way we would have hoped, with the result being that our company finds the lots on our balance sheet," Mr Smith said.

He added: "But we will not roll dice in the auction room with shareholders' money. Strategy, opportunity, judgment and sensible risk management will guide our use of these guarantees."

Shares in Sotheby's remained flat at $43.76 by mid-morning trading in New York following the results announcement.

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