USG Corp. revealed today it plans to reduce its wallboard production capacity in North America by another one billion square feet at plants that last quarter were operating at only two-thirds their potential rate.

A USG spokesman said that since 2006, the company's wallboard production capacity has fallen from 12 billion feet per year to roughly 10 billion feet/year now. Today's announcement reduces that capacity to roughly 9 billion feet per year, he said.

That's not to say USG actually operates at capacity; in fact, during the third quarter its plants put out only about two-third as much wallboard as they could have produced. Production in the company's U.S.-based facilities in the third quarter fell 27% from the previous year to total 1.71 billion square feet.

Today's news was part of a more general announcement detailing other ways the company is responding to a market slump that saw it post a $40 million net loss for the third quarter. It said it will reduce costs by $125 million as well as lower capital spending from approximately $240 million this year to approximately $50 million in 2009, reflecting the completion of several large capital projects.

On Nov. 7, USG filed a notice with the Securities and Exchange Commission saying it would cut its worldwide salaried workforce by 20%, or 900 positions. The process is expected to be completed by Jan. 31 and will cost USG roughly $35 million to $45 million, the company said.

A week before that, on Oct. 28, USG said in its latest financial report that sales in the third quarter fell 7.7% from the year-earlier period to $1.2 billion and that earnings swung from a $7 million net profit in July-September 2007 to a $40 million net loss last quarter. With the latest results, USG's net sales for 2008 are down 10% to $3.6 billion, while earnings have swung to a $125 million net loss this year from a $104 million profit in the first nine months of 2007.

"Our core wallboard business continued to be affected by the sharp drop in the residential housing market and high raw material and energy costs compared to last year," William C. Foote, USG chairman and CEO, said then. "The distribution business is being impacted by lower product shipments and tighter margins. The ceilings business continued year-over-year sales growth again this quarter; however, the commercial market has begun to exhibit signs of weakness."

By unit, USG's North American Gypsum business did even worse than the overall company, posting an operating loss of $48 million on a 12.6% drop in sales to $610 million. The U.S. Gypsum Co. part of the business posted an operating loss of $58 million on a 16.6% decline in sales to $494 million. The company attributed most of the decline to a 27% decline in shipments compared with 2007's third quarter and a 7% drop in average realized selling prices for wallboard. Profit for non-wallboard products, such as joint treatment, shrank 20%.

On the distribution side, L&W Supply Corp. and its subsidiaries reported a 14% drop in sales in the third quarter to $526 million, while operating profit shrank 81.8% to $4 million. Gypsum wallboard shipments fell 28%.So far this year, L&W Supply has closed 24 centers, leaving it 228.