R. D. Hubbard: His AFG Industries and His Race Horses Win With Style : Firm Sets Records With Forward-Looking Strategy
In the seven years sinc R. D. Hubbard bought two glass companies tottering on the edge of bankruptcy and merged them into AFG Industries Inc., he has built the new firm into the fastest-growing glass company in the United States, earning record profits and raves from industry observers.
Hubbard’s strategy of piecing together smaller companies and developing new products and technology has enabled Irvine-based AFG to dominate segments of the glass industry, becoming the leading producer of several types of specialty glass, such as solar glass and glass used for aquariums, appliances, patio furniture, shower doors and non-glare picture frames. Acquisitions in the last several years include mirror manufacturer Wondura Products Inc. of Tupelo, Miss.; O'Dell Aquariums Inc., and Gemtron Corp. of Sweetwater, Tenn., a fabricator of glass used in microwave ovens and other appliances.
Specialty glass, which now accounts for 51% of AFG’s sales--up from 31% in 1979--is more profitable than commodity flat glass used for windows and windshields, which was the main product of AFG’s forerunners, Fourco Glass Co. of West Virginia and Tennessee glass manufacturer ASG Industries. Specialty glass is also less dependent on the fluctuating housing and automotive markets. While AFG still makes window glass used in construction and remodeling, it no longer produces automobile glass.
High Growth Rate
AFG’s willingness to spend money on research and development of more efficient manufacturing methods is another reason given for the company’s 55% compound annual earnings growth rate since 1978.
“We don’t think we’ve reached our limit in improving our production,” said Hubbard, adding that he is exploring greater use of automation and robotics to improve yields.
The new game plan has resulted in rapid growth for the company, which is the fifth largest flat glass manufacturer in the United States, with a 15% market share, compared to 7% in 1978. In 1984 AFG posted a $24-million profit, up 67% from $14 million in 1983. Sales for 1984 were $284 million, a 31% increase from the prior year’s $217 million. By the end of March, the company had shown record results for 17 consecutive quarters, and it has not lost money since the second quarter of 1980, when one of the three plants it owned at that time was closed by a strike.
“1984 was a record year and 1985 is going to break that record,” Hubbard predicted confidently.
Headquarters in Irvine
Last October Hubbard moved his headquarters from Kingsport, Tenn., to a luxurious high-rise in Irvine. He was accompanied by a corporate planning staff of eight, including Ron Tiller, vice president for planning and development, and Gary Miller, treasurer. Offices for the glass division remain in Kingsport, while the company’s fabrication division is located in Sweetwater, and it has factories in Kingsport and Greenland, Tenn., Cinnaminson, N.J., and Jerry Run, W. Va.
Although Hubbard gave business reasons for his relocation to Orange County, he has had a home in Palm Desert for 10 years and also traveled frequently to the West Coast to watch the quarter horses he owns race at local tracks.
“We’re very pleased with the decision,” said Hubbard, who said he had also looked at Texas as a possible spot for his new headquarters.
Hubbard said that Orange County’s reputation as a banking and investment center was a factor in the choice for his office, and proximity to the John Wayne Airport was another consideration.
West Coast Plants
“Our long-range plans are to have two plants on the West Coast,” said Hubbard, whose current factories are all located east of the Mississippi River. Because of transportation costs, AFG ships only a limited amount of raw glass west of the Rocky Mountains.
Hubbard said the availability of energy and its cost are key factors in the final choice of where the West Coast plants will be built, since energy accounts for 30% of glass production costs because of the intense heat required. Furnaces at AFG’s four plants are operated 24 hours a day.
“There is a sizable market here because of all the construction--residential and non-residential,” Tiller said.
Tiller said AFG would probably build one of its smaller “mini-float” plants, which have a shorter, more efficient production line than traditional glass plants that make float glass, so-called because it is formed by “floating” a layer of molten glass on a bed of molten tin, producing flat glass used in windows and mirrors.
“You can fit the size furnace to the market,” Tiller said. “It’s more economical both in initial start-up costs and in return on investment.”
Low Costs Stressed
Economical production has been one of AFG’s goals from the start, when the company sold obsolete factories and modernized its remaining plants. After reorganizing the operations of Fourco and ASG, the new AFG increased production and sales even though the number of employees had been considerably reduced.
In 1977 Hubbard was president of Safelite Corp., an automobile glass manufacturer, when he convinced Safelite’s parent company, Royal Industries, to enter an agreement to manage Fourco with an option to buy. Later that year, when Hubbard was told that Royal, now controlled by Lear Siegler, was not interested in exercising its option, he and several partners purchased the privately owned Fourco.
By the following year Fourco was beginning to show a profit. Hubbard, acting as a “white knight,” then acquired publicly held ASG, rescuing it from a takeover attempt by glass importer Leo Zuckerberg, and merged the two companies to form AFG Industries Inc.
“Through their rather brief history, they’ve been able to acquire facilities at a fairly low cost,” said Christopher Westcott, an analyst with Tucker, Anthony in New York.
In 1981 AFG also acquired a factory in Cinnaminson, N.J., from Combustion Engineering, a heavy-machinery manufacturer, when Combustion Engineering decided to end its glass-making operations. However, the plant has been plagued with production problems and is only now approaching the break-even point.
The gamble of taking on two failing companies has paid off handsomely for Hubbard, 50, who earned $515,000, including bonuses, last year for serving as chairman and chief executive officer. AFG leases a company jet from Hubbard for $19,313 per month for use on company business, and Hubbard also owns about 21% of AFG’s stock, now selling for about $20 a share over the counter. His holdings are valued at about $41 million.
AFG is betting on the continued expansion of the home remodeling market as the price of new housing continues to rise, and more homeowners decide to fix up their current residence rather than buy a new house.
“In 1985, for the first time, remodeling windows and doors will exceed those used in new construction,” said Hubbard, noting that many consumers choose to buy energy-saving insulated windows to install in their homes. “Remodeling is not nearly as unpredictable as housing starts, and it doesn’t suffer as much when the housing starts drop.”
Scheduled to be introduced later this year is low-emissivity glass, which is more expensive than regular window glass, but retains heat and is designed to save consumers money on their energy bills. Analyst Claire Armentrout of J. C. Bradford in Nashville estimated that the “Comfort E” glass could generate $20 million in sales in 1986, and the company projects sales of $100 million worth of low-emissivity glass in the next three years.
“It’s a superb company,” said Armentrout. “They have superior technology and, as a smaller company, are able to provide superior service.” Another part of AFG’s formula for success is its emphasis on customer service and fast turnaround time on orders. AFG has acquired several glass distributors in the last few years in order to expand the distribution of its products, and recent industry surveys showed that the company was ranked first in service and on-time delivery.
Tiller said the housing market had expanded enough recently that the glass industry was able to raise prices approximately 6% during the first quarter of this year, the first such increase in about four years.
“We tried it once before and it didn’t stick--we lost some business,” Tiller said. However, he said this time the nation’s largest glass producer, PPG Industries Inc., initiated the increase and the other manufacturers followed suit.
2 Ventures on Hold
Two of AFG’s newest ventures, photovoltaic panels, which convert sunlight to electricity, and the exportation of the mini-float technology to Third World countries, are in a holding pattern at the moment.
Hubbard said he was negotiating with a number of countries about building AFG-style glass plants, and that he feels confident that one or two agreements will be signed within the year. Meanwhile, he said, AFG is waiting to see how Chronar Corp. of New Jersey does with its new production facility before committing itself any further in a joint agreement to develop glass for the photovoltaic market.
And Hubbard intends to continue his policy of “picking niches where we can be No. 1 or No. 2. We don’t attempt to be all things to all people.”
Hubbard’s niche strategy is a major reason the future looks good for AFG, according to analyst Samuel Braude of Mosely, Hallgarten, Estabrook & Weeden in New York.
“With their emphasis on specialty glass products, their delivery and service, their aggressive development of new products and their excellent management, they can continue to grow 15% to 20% over the next five years,” Braude said.
Hubbard said he intends to generate 15% annual growth for the company by emphasizing the development of profitable specialty items and continuing to improve yields by offering employees production bonuses.
Company salesmen also get to travel in style.
“Every one of them drives a new Mercedes,” said Hubbard, adding that he wanted members of the sales force to be comfortable because they spent 70% of their time in their cars.
“It’s worked out very well. In all honesty, it’s cheaper in the long run,” Hubbard said, because the diesel model luxury automobiles last longer and require less maintenance than conventional company cars, and the used vehicles have a good resale value.
“My competitors’ salesmen all want to come to work for me,” he said.