Pzena Investment Management's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Pzena Investment Management, Inc. (PZN)

Q2 2012 Earnings Conference Call

July 25, 2012 10:00 AM ET


Richard S. Pzena - Chairman, CEO and Co-Chief Investment Officer

Gregory S. Martin - CFO


Ken Worthington – J.P. Morgan

Marc Irizarry – Goldman Sachs Group, Inc.



Good day, ladies and gentlemen, and welcome to the Second Quarter 2012 Pzena Investment Management Earnings Conference Call. My name is Lacy, and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will facilitate a question-and-answer session towards the end of the presentation. (Operator instructions) As a reminder, this conference is being recorded for replay purposes

I’d now like to turn the presentation over to your host for today’s call, Mr. Greg Martin, CFO. Please proceed.

Gregory S. Martin

Thank you very much, Lacy. Good morning and thank you for joining us on the Pzena Investment Management second quarter 2012 earnings call. I’m Greg Martin, Chief Financial Officer. With me today is our Chief Executive Officer and Co-Chief Investment Officer, Rich Pzena.

Our earnings press release contains the financial tables for the periods we will be discussing. If you don’t have a copy, it can be obtained in the Investor Relations section on our website at www.pzena.com. Replays of this call will be available for the next two week on our website.

As always, we need to reference the standard legal disclaimer before we begin. Statements made in the presentation today may contain forward-looking information about management’s plans, projections, expectations, strategic objectives, business prospects, anticipated financial results and other similar matters. A variety of factors, many of which are beyond the company’s control affect the operations, performance, business strategy and results of the company and can cause actual results and experiences to differ materially from the expectations or objectives expressed in these statements. These factors include but are not limited to the factors described in the company’s reports filed with the SEC, which are available on our website and on the SEC’s website www.sec.gov.

Investors are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which these statements are made. The company does not undertake to update such statements to reflect the impact of circumstances or events that arise after the date these statements were made. Investors should however consult any further disclosures the company may make in the reports filed with the SEC.

In addition, please be advised that because of the prohibitions on selected disclosure, the company as a matter of policy does not disclose material that is not public information on our conference calls. If one of your questions requires the disclosure of material non-public information, we will not be able to respond to it. Thank you.

As always I’ll turn the call over to Rich, but first I’d like to review some of our financial highlights. We reported non-GAAP diluted EPS of $0.07 per share and $4.5 million in non-GAAP diluted net income. Revenues were $18.3 million for the quarter and our operating income was $8.4 million. I’ll discuss our financial results in greater depth in a few minutes.

Let me now turn the call over to Rich, who will discuss our view of the investing environment.

Richard S. Pzena

Thanks, Greg. First, I would like to make a few comments on the investment environment, which has been heavily influenced by macroeconomic events, particularly in Europe, followed by how our firm is reacting to the challenges and opportunities it has created.

Global equity markets were once again buffeted by fear and pessimism, which returned during the second quarter. Investors became re-obsessed with the continuing debt crisis in the Eurozone and on weakening economic data in the U.S. and China. For the third year in a row the slow healing process coming out of the global financial crisis has led to enough uncertainty for investors to continue to seek a questionable safety of over priced government bonds, high dividend yielding and non-cyclical equities.

While this doesn’t make it easy to stay the course as value investors, it does make it ultimately very profitable to do so. The history of value cycles as we’ve noted in the past, is to see great value opportunities created in those periods where economic visibility is the murkiest. The current economic environment is not nearly as frightening as in early 2009, yet the valuations of many cyclical businesses are approaching the levels reached then.

Cyclical industries such as housing, and matured technology businesses are selling at or close to historically low valuations. Financials are selling at relative price to book valuations that put them in close proximity where they were in March 2009. The timing of exactly how this will play out is still uncertain. But one thing is clear to us, significant value is created when investor spears become so great that they’re willing to throw the baby out with the bath water as investor seem to be doing today.

Rather than to come to the fear that is driving under valuation, a true value manager gets excited when value opportunities abound. Today many of our developed market portfolios are amongst the cheapest in our firm’s history. However, one characteristic of value investment – investing especially when investing before the [chaos] per share price improvement is apparent is that it requires time for improvement to be recognized and rewarded in share prices.

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