Delta Faucet adaps to new normal in homebuilding

Homebuilding remains near historic lows, and there’s not much activity in remodeling.

How does a building-supply company like Masco Corp., parent of Carmel-based Delta Faucet Co., turn a profit? Masco and its
competitors are still trying to figure that out, but there are signs of improvement.

The plumbing-products division, which includes Delta, saw first-quarter sales rise 14 percent, to $663 million. Masco overall
posted sales of $1.9 billion, up 3 percent—the first increase since the first quarter of 2006. The loss shrank to $7
million from $81 million in the first quarter of 2009.

Executives remain conservative in their outlook. CEO Timothy Wadhams, speaking at a June 23 investor conference, ticked off
a long list of nagging concerns, including high unemployment and tight credit. Considering the company has cut costs by $400
million since 2006, he said, “We expect to get a nice lift from a recovery… we’re in a very good position.”

One of Masco’s recent restructuring moves takes a page from Delta’s playbook.
The company consolidated its cabinet-making operations and plans to market KraftMaid and other brands in a similar fashion
to faucets.

Masco says it’s the world’s largest manufacturer of faucets and cabinets, but brand recognition in the latter
business lags. Delta and another plumbing-products line, Germany-based Hansgrohe, are two of the company’s most widely
recognized brands. (Delta also makes Peerless, marketed toward do-it-yourselfers, and Brizo, available only in high-end showrooms.)

Delta executives weren’t available for comment, and the company does not break out its finances, spokeswoman Paula
Wagner said.

“I can tell you that Delta and Brizo technologies and water-saving solutions have found favor among consumers, especially
as interest in green building continues to grow and homeowners look for products that offer the most value,” she said.

The company’s latest marketing push is around “Touch2O,” which allows users to turn faucets off and on
by tapping any part of the spout or handle. The television ad by Young & Laramore features messy hands moving in on a
gleaming tap, which is operated by a clean wrist or arm.

Delta appears to be emphasizing more profitable high-end products, said Fritz Steck, owner of Plumbing Supply in Indianapolis.

Steck said that will probably mean better discounts for independent wholesalers that operate fancy showrooms. He also predicted
Delta will work harder on the commercial construction side, trying to persuade more architects and engineers to write its
products in to plan specifications.

All that effort may bring relatively minor returns for the foreseeable future. Before the real estate meltdown, building
suppliers relied on new housing starts of at least 1.5 million units a year, said Jim Olsztynski, editor of Supply House
magazine.

The old norm “keeps plumbing factories humming,” he said. “Most of the forecasts I’ve seen, we’re
not going to reach that for another four to five years.”

Housing starts in 2009 totaled 554,000. Wadhams said Masco is following conservative forecasts for this year of 600,000 to
700,000 starts.

The company has scaled back the portion of its business tied to new-home construction, but Wadhams said it’s still
“very important to us.” New housing accounted for about 25 percent of the company’s $7.8 billion in 2009
sales, he said.

Back in 2006, when the company had sales of $12.5 billion, Wadhams said, the tie-in to new homes was 40 percent or greater.

Remodeling held up in past recessions. But this downturn was so severe that instead of completely making over a kitchen or
bathroom, homeowners are doing simple swaps, Olsztynski said.

“All manufacturers—Moen, Delta, everybody else, they have to get used to a marketplace that is much smaller than
they are used to,” he said.

No one is more familiar with the new normal than Masco and Delta’s decimated manufacturing ranks. Delta’s total
employment is 1,345, down 43 percent from 2007.

The local company’s sole Indiana plant, in Greensburg, employs about 150 people, compared with 860 three years ago.

Just this March, Delta further consolidated operations in Greensburg to Jackson, Tenn., cutting another 40 jobs.

Masco isn’t finished restructuring. The company said it will close another two plants in 2011 because of the cabinet-making
consolidations.•