April 25, 2014

Profile: Hughes Supply

Hiding in Plain Sight

A construction supply company in Orlando may be the state's quietest billion-dollar company.

Rob Johnson | 9/1/2004
During a recent professional golf tournament in Orlando sponsored by Hughes Supply Inc., the company's chief executive officer got an accustomed dose of humility.

"Someone came up to me and said, 'I've seen your trucks for years. By the way, what exactly do you do?' " recalls Tom Morgan, the company's president and CEO.

What Hughes does is distribute construction and maintenance-related products, from air-conditioning parts to plumbing and sewer equipment. The Fortune 500 company employs about 9,000, one-third of them in Florida. It had sales of $3.3 billion last year, and profit margins range consistently around 23%.

For all its heft, Hughes may be Florida's quietest big company, better known on Wall Street than on Orange Avenue in its headquarters city of Orlando. "Most people outside our industry don't really understand us," says Morgan, a trim man of somewhat military bearing who acknowledges his company's anonymity graciously.

Hughes Supply's low profile in the state is ironic because the diverse, hard-goods character of the company is exactly what economic development officials from Tallahassee to Miami covet. Hughes sells to a range of customers from apartment builders to municipalities in 38 states, as far away as Alaska.

Hughes' far-flung reach also belies a traditional criticism of Florida as a geographically undesirable place for distribution. The company, which does no manufacturing, uses a network of warehouses at 486 sites to store its 350,000 products. Hughes operates a fleet of about 3,000 trucks to serve contractors working everywhere from apartment complexes to public utilities.

Healthy start
The company traces its beginnings to 1928 when an Indiana electrical contractor named Clarence Hughes moved his family to Orlando for the health of son Harry, who had asthma and was feared to be developing tuberculosis. But Harry and the family business both found excellent health in central Florida.

Clarence Hughes branched out from electrical work into supplying other contractors after discovering that many parts needed from up North were slow to arrive. By the 1940s, Hughes Supply had long-distance trucks that hauled farm produce north and picked up building materials to bring back. For awhile during World War II, the company made bomb casings. In 1946, it started distributing plumbing fixtures.

The company hit $100 million in annual sales in 1973, $500 million in 1988 and $1 billion in 1995. It has been traded on the New York Stock Exchange since 1984.

Along the way, the Hughes family has become prominent in Florida leadership circles. David Hughes, a grandson of Clarence and chairman and a director of the company, is active on the Florida Council of 100, a University of Florida Gator booster and a director of Darden Restaurants, among other companies. Vincent Hughes, David's brother, is also on the Hughes Supply board and was formerly a vice president of the company.

Even as Hughes' revenue continued to climb, however, its profile has remained low. The company is still sometimes mistaken for part of the electronics and aircraft conglomerate left by the late Howard Hughes, for example -- an enterprise that never flew under the radar.

Morgan, while pleasantly self-deprecating about the company's relative anonymity, says it has some advantages. "From a competitive standpoint, there's a little more stealth" when the company noses around for acquisitions and researches expansion into new product areas, he says.

Under Morgan, those acquisitions have been fewer but much larger, including the recent purchase of Todd Pipe & Supply, a $211-million company that boasts the largest independent wholesale plumbing business in the high-growth areas of Southern California and Las Vegas.

David Bearman, the chief financial officer whom Morgan brought in last year to streamline operating systems and financial controls, says the lack of much public spotlight relieves pressure. Says Bearman, a decade-long veteran of Cardinal Health in Ohio as it grew to $20 billion in annual sales from just $700 million: "At a Disney or a Darden Restaurants, if you have one financial quarter that's below expectations, people want instant resolution."

No apologies have been necessary lately for the performance of Hughes stock, which rose 99% during the fiscal year ended in January. Trading at around $60 a share in July, the stock was recommended as a "strong buy" by three of four analysts surveyed by Zacks.

There's even an advantage to being a bit misunderstood by the financial media, Bearman says. "Everyone thinks they're an expert on restaurants, hotels and theme parks." But there are far fewer know-it-alls around when it comes to industrial pipe fittings, he points out.

To be sure, says Morgan, if he were starting a distribution company from scratch, he might consider a location more nationally centralized. One of Hughes' competitors, Grainger Corp., operates from Chicago, which offers so many transportation options that the company doesn't need to operate a fleet of trucks.

But, Morgan says, "there's a recruiting benefit in Florida with our quality of life." Indeed, the offices of many Hughes executives reflect that -- with promotional golf bags from the company-sponsored tournament propping doors open on both sides of some hallways.

Name recognition
In the last year or so Hughes has started to work harder at creating a brand similar to that of a consumer products company. Hughes trucks sport a new blue logo, there's a gleaming year-old company headquarters in downtown Orlando where the Hughes name is clearly visible from Interstate 4, and the company has produced several slick new brochures.

"There's been nothing like these in our industry," boasts Bearman. "Building supply is still fairly primitive; we have customers who write down their orders on a piece of 2-by-4."

Such a constituency may make the Hughes branding strategy seem off-target. But Bearman argues for it. He says the company's increasing use of "kitting," packaging kits or bundles of related supplies together, should drive up profit margins. "We want to be more than just a supplier," he says, and the full-service aspect of kitting helps customers shop faster than they might in leafing through the company's catalog item by item.

Cobbling that tactic together with an acquisition strategy, expansion into more states and a prospective to develop sales internationally, Hughes has the potential to be a $20-billion company in a few years, says Bearman. "That would be about 10% of the market we're in, not an unreasonable goal," he says.

If that happens, will Morgan still have to endure questions about what Hughes does at its own golf tournament? Probably, he says. And it's fine with him if Hughes never becomes a household name, as long as people who build houses have no doubt about it.

Tags: North Central, Housing/Construction

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