Sotheby’s Q2 paints disappointing picture

Sotheby’s stock was hammered Monday after the auction house blamed thinner margins on a 24 percent decline in second-quarter earnings.

Intense competition for high-profile works like Modigliani’s “Reclining Nude” and Picasso’s “Female Bust in Profile” — both sold by Sotheby’s during the quarter — reduced second-quarter fees as a percentage of sales to 14.1 percent on inflated guaranteed prices for the sellers.

That was 2.2 percentage points lower than the auction commission margin maintained by the auction house a year ago.

Earnings per share fell to $1.08, compared with $1.43 a year ago. Wall Street had been expecting EPS of $1.52.

The earnings miss dragged Sotheby’s stock down 5.6 percent, to close at $49.93 per share. However, revenue increased 2 percent, to $345.6 million, beating analyst expectations of $330.3 million.

During an earnings call, Chief Financial Officer Mike Goss said thinner margins were mostly “attributable to the sale of two large guaranteed paintings.”

Goss didn’t identify the paintings, but art experts claimed one was the Modigliani, which sold for $157.2 million in May, and the Picasso, which sold for $36 million in June.

Sotheby’s guaranteed both pieces, meaning it gave the sellers a fixed price before the works went up for auction.

CNBC reported the guarantee was around $150 million for the Modigliani and a money-losing $45 million for the Picasso.

Experts believed Goss was referring to Sotheby’s loss on the Picasso — estimated at $6.5 million after inclusion of the buyer’s commission — when he admitted in one instance “we just made a pricing error.”