Reduced overhead and higher profit margins enabled U.S. Gypsum Co., the American production arm of USG Corp., to shrink its operating loss to $25 million in the second quarter from $64 million in the year-earlier period despite a 29% drop in net sales to $360 million, USG reported today.

Meanwhile, L&W Supply Corp. and the subsidiaries that make up USG's building products distribution business swung to an operating loss of $26 million from an $8 million profit in the April-June period of 2008. Sales fell 38% to $337 million.

As for consolidated results, Chicago-based USG's net loss deepend to $53 million from a year-earlier $37 million on a 36% slump in net sales to $829 million.

U.S. Gypsum was able to shrink its operating loss "due to increased profitability for the gypsum wallboard and joint treatment product lines, as well as significantly lower overhead and other costs resulting from restructuring actions taken during the past year," USG reported. It pinned most of the sales decline on a 38% fall in shipments of Sheetrock brand gypsum wallboard. U.S. Gypsum shipped 1.18 billion square feet of gypsum wallboard during the quarter of 2009; that's 38% less than the second quarter of 2008 and 10% below what it did in the first three months of 2009. "U.S. Gypsum's average realized selling price for gypsum wallboard was $120.79 per thousand square feet during the second quarter of 2009, up 10%t from the second quarter of 2008, but down slightly from $121.42 in the first quarter of 2009," the company said.

At L&W, weaker residential and commercial construction demand pushed gypsum wallboard sales down 36% from the second quarter of 2008, while sales of other products were down 38%. The operating loss occurred even though L&W had trimmed 27% million worth of operating expenses, including the closure of 54 distribution centers in 2008 and nine centers in 2009. As of June 30, L&W had 190 distribution centers, USG said.

On the corporate level, USG chairman and CEO William C. Foote attributed the weaker results to significant declines in construction activity worldwide.

"In the U.S., our largest markets, new residential and home repair and remodeling, appear to be stabilizing, while the commercial market continues to decline," Foote said in a statement. "USG continues to stay ahead of these market declines. Our efforts to reduce costs and increase liquidity during the global economic contraction are succeeding. Stabilization in the domestic residential segment appears to be on the horizon and will be a welcome relief. Meanwhile, we will continue our efforts to control costs, improve liquidity and return our businesses to profitability."