Sotheby's Down 9% After Missing Earnings Estimates

Shares of Sotheby's

are down 9% after the company missed earnings estimates yesterday. In 2011, Sotheby's generated the best financial results in its 268-year history, apart from its record year in 2007. Sotheby's strong financial performance was driven by a $57.5 million, or 7%, increase in revenues attributable to growth in both auction and private sale commission revenues. Offsetting the growth in revenues was a higher level of operating expenses due in part to increased staff levels and their associated compensation costs, a higher level of direct costs of services consistent with the volume and composition of auction sales and the cost of investments in Sotheby's strategic initiatives, principally related to the growth of its business in China and enhancing its information technology and online offerings. Full year results were favorably impacted by a tax benefit of $13.6 million, or $0.20 per share, recognized in 2011 associated with the reversal of a valuation allowance against certain of Sotheby's deferred tax assets, and a pre-tax $7.6 million decrease in net interest expense. Including these factors, net income for 2011 is $171.4 million, a $10.5 million, or 7%, increase from the prior year; diluted earnings per share is $2.46, a $0.12, or 5%, increase from 2010. Net income for the fourth quarter is $71.5 million, compared to $96.2 million in the prior period. This decrease is largely attributable to a decline in auction and related revenues which totaled $274.9 million, $35.6 million, or 11%, lower than the prior period. This is primarily due to an $85.2 million, or 5%, decline in net auction sales over the period resulting from a $171.0 million, or 46%, decrease in single-owner sales during the quarter, as well as a significant decrease in auction commission margin. The decline in auction revenues is partially offset by a decrease in salaries and related costs, attributable to a lower level of incentive compensation expense in the quarter.