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Eagle USA Airfreight's Stock Up 63 Percent Since Dec. 95 IPO - Houston Chronicle, June 21, 1996
To hear Jim Crane tell it, growing Eagle USA Airfreight from two employees in 1984 to 1,000 today has everything to do with common sense. Maybe that's why the company is so uncommon. In the six months since its shares went public, the Houston company has broken from the pack to become a darling of the United States' crowded freight forwarding business. The earthshaking methods Crane has used to fly Eagle above its rivals? Crane repeats what has become the company's motto: Sell it, service it, and collect it. Crane, founder and chief executive of Eagle, and his top managers say it is by doing these business basics that they've become the nation's largest air freight forwarding company, with terminals in 45 U.S. cities. Paying attention to the fundamentals has kept Eagle on track to increase revenues 40 percent again this fiscal year, to a projected $175 million, and cause it to split the seams of leased facilities at Houston Intercontinental Airport. To accommodate its burgeoning operation, Eagle plans to break ground soon on a $4.5 million headquarters and warehouse on 22 acres it purchased near the airport. The reason Eagle does the basics better than its competitors, Crane said, is that it treats its employees better. The company pays its people well above average for the industry, and everyone, from supervisors to dock hands, participates in a profit-sharing plan. These pay policies, unique in the historically low-margin business, are designed, Crane said, to motivate the workforce to put forth extra effort. "There's a lot of people that do what we do. We really kept to the basics, always trying to hire the best people," Crane said. "When I got into the business, I saw a lot of turnover. Somebody would move for $200. I tried to pay our people so that wouldn't be a problem." Eagle has found a profitable niche by focusing on shipments of more than 70 pounds. Thus, it doesn't compete with the likes of Federal Express and UPS, which typically transport smaller packages and documents . And because it doesn't have its own fleet of airplanes, it is unlike integrated carriers such as Burlington Air Express and Emery Air Freight Corp., which aren't considered freight forwarders because they handle large shipments on their own jets. In contrast, the only plane Eagle has is a corporate jet that is partly owned by Crane, and is used not to transport cargo but to carry Crane and other executives to company offices and customers. Instead, Eagle relies on space available on commercial airlines to fly its customers' cargo. This provides greater flexibility and a nearly unlimited route schedule - and it doesn't tie up assets. For example, it is 6 p.m. and you need to send 600 pounds of cargo - the average weight of an Eagle shipment - to an assembly line in Detroit by 9 a.m. the next day. While their competitors may already have flown their last flight or closed their offices for the night, Eagle can make the delivery on a number of airlines, on a cargo carrier, or by chartering a plane. "You're just not going to get that service from anybody else," said Bob Block, general manager of transportation and traffic for Stewart & Stevenson Services. Houston-based Stewart & Stevenson, which makes and services all kinds of power equipment, paid Eagle $267,744 last year to ship everything from boxes of the company's annual reports to truck parts to 17,000-pound turbine engines used in power generators, Block said. Another of Eagle's largest customers is Houston-based Compaq Computer Corp., which has selected Eagle as its primary air freight shipper. While the personal computer business is the company's largest market, making up about 25 percent of its '95 revenue, Eagle recently has added customers as diverse as Nike, Ford, and General Motors. The growing base of 4,000 customers has helped Eagle achieve pre-tax profit margins of about 10 percent of sales - the highest in the industry says James Parker, an analyst with Humphrey-Robinson Co., one of the underwriters for Eagle's stock offering. In contrast, San Francisco-based Fritz Cos., a leading air freight forwarder that specializes in international cargo and is larger than Eagle, has profit margins of 5.8 percent. Even Fed Ex has a margin of 5.2 percent, Parker said. "This is the only highly profitable significant domestic freight forwarder," he said. Clearly, Eagle's pay policies have paid off. "They are able to get the best people because they end up making the most money. This is a people business," Parker noted. "They're getting more productivity, and they are just doing a better job." The practices have also kept employee turnover low. "If we want somebody, they are not going anyplace, because their deal here is too good," said Dan Swannie, vice president of operations, whom Crane credited as one of the key hires after he launched the company. Specifically, Eagle pays quarterly bonuses based in part on how employees in a work group rate each other in terms of teamwork. Employees also can earn a bonus each December equal to 10 percent of their annual salary if their unit is profitable. So, an Eagle warehouse worker making $20,000 a year can make an extra 20 percent through quarterly and annual bonuses, while top salespeople can make several hundred thousand dollars in commissions. Moreover, the company matches 100 percent of employees' contributions to the 401(k) retirement plan - up to 5 percent of an employee's salary. Finally, the top 80 managers are granted stock options, following the company's initial public offering of stock on Dec. 1, which raised $30 million to help fuel Eagle's growth. Founder Crane, 42, a native of St. Louis, began his career in that city after earning bachelor's and master's degrees in industrial safety from Central Missouri State University. But he moved to Houston in the early 1980's at the urging of a friend who promised he could make $38,000 or more as a salesman for a freight forwarding company. For a short time, Swannie was Crane's boss in Houston, and when Crane started Eagle in 1984 he subleased space from a company Swannie operated. Crane soon lured Swannie to Eagle with a promise of part-ownership, and a few months later recruited as vice president of sales Donnie Roberts, with whom Crane also previously worked. The trio has been together ever since, with Swannie handling the operations, Roberts building the sales force and Crane setting direction and overseeing it all. Swannie, 48, now owns nearly 10 percent of Eagle USA's shares and is the company's largest shareholder behind Crane, who retains about 62 percent of the 8.2 million shares outstanding. Roberts owns 2.5 percent of the stock. "Jim was always willing to give up the financial rewards to people willing to put forth those efforts," Swannie said. Early on, Eagle was unwittingly funded by Continental Airlines, which flew about 85 percent of the company's cargo. While Continental was mired in its first trip through bankruptcy, it failed to bill Eagle for about nine months, and "we weren't shaking their tree to send us a bill," Crane admitted. Eagle did paid the bill. But Crane said Eagle doesn't return the favor with its customers, reminding them about the third operating tenet - collect it. "If they're not going to pay us within the 30-day terms consistently, we are not going to finance them, like Continental financed us. We can't afford it," Crane said. To help maintain financial controls over its growing freight network, Eagle has built a sophisticated computer system that, among other things, provides detailed profit and loss data on all of its 45 terminals, which are run day-to-day by local and regional managers. The reports provide an efficient system of checks and balances, allowing the bosses in Houston to pinpoint any problems in the field before they become serious. "I have a P&L for every single office right here," Crane said, looking over a thick computer printout. "I can tell you what Oklahoma City paid on forklift fuel." The company also allows field managers to "really manage their own businesses, and they get paid off the bottom line," he said. One of the most important items tracked is profit per shipment, something not typically measured by competitors, which focus on gross sales, Swannie said. But this has helped the company weed out big volume customers that provide little profit to focus on more profitable ones. The company has never opened an office that hasn't made money, said Crane, who plans to expand to about 75 terminals in the next couple of years. The growing network provides existing customers with more places Eagle can serve them and helps bring in more customers, Paul Schlesinger, analyst with Donaldson, Lufkin & Jenrette Securities, noted in a recent report. He rated the company shares to "outperform" the market. In parts of the country where its network is weakest, such as the Northeast, Eagle will likely acquire companies, Crane said. After the public offering, the company is sitting on a ton of cash - about $29 million - and has no debt, he noted. Eagle is also expanding its local delivery operation to many of its cities, using mostly independent contractor truck owners to pick up and deliver freight to for its customers. In addition, the company is moving overseas by signing up cargo agents in more than 100 international locations. Crane expects international accounts to provide more than half the company's sales in the years ahead, up from about 7 percent this year. Crane, majority shareholder in the company, said it's not the money that is driving him any longer. "I like the business, I'm not that old and it's been fun. I'd like to see the thing stay stable and create opportunity for the rest of the people in the company." He wants Eagle to grow into a $1 billion company, which he figures will take six or seven years if it follows its steady growth pattern. "As long as it is doing well, I'd like to run it."
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