USPS reports $2bn quarterly loss despite 6.6% package gain

The US Postal Service has reported a US$2 billion loss for the three months to 30 June –significantly worse than the same period last year – despite a 6.6% revenue increase in its

Its net loss of $2 billion compares to a net loss of $740 million for the same period last yearand means that USPS has recorded a loss in 21 of the last 23 quarters, the excepted quarters beingthe two in which Congress rescheduled the company’s retiree health benefits prefundingpayments.

CFO Joseph Corbett said that the organisation would be unable to make the required $5.7 billionretiree health benefit prefunding payment to the US Treasury, due by 30 September 2014. He stressedthat comprehensive postal legislation was necessary to eliminate this liability and provide a basisfor the Postal Service to return to long-term financial health.

He also said the company’s inability to re-invest in its business was unsustainable.

“Due to continued losses and low levels of liquidity, we’ve been extremely conservative with ourcapital, spending only what is deemed essential to maintain existing infrastructure,” Corbett said.“To continue to provide world-class service and remain competitive, we must invest up to $10billion to replace our aging vehicle fleet, purchase additional package sorting equipment, and makenecessary upgrades to our infrastructure.”

Nevertheless, USPS’s revenues continued to improve as a result of the Postal Service’s Januarymail-price increase, successful sales and marketing initiatives, and continued success in growingits package business. Total operating revenue of $16.5 billion increased by $327 million, or 2%,compared to the same period last year.

In addition to Shipping and Package revenue increasing by 6.6%, standard Mail revenue was up5.1%, driven by a 0.9% increase in volume and the January 2014 price increase. First-Class Mailvolume was down 1.4%, but the January price increase offset this decline, resulting in a 3.2%revenue increase.

However, total operating expenses for the third quarter of 2014 were $18.4 billion, an increaseof $1.5 billion from the same period last year, driven mainly by the so-called Workers’Compensation fair-value adjustment. Compensation and benefits expenses increased by $15 million, or0.1%, compared to the third quarter of 2013, as contractual pay increases were offset by work-hourreductions and more efficient use of available labour flexibility.

Postmaster General and CEO Patrick Donahoe said the company’s performance included severalpositive indicators.

“We’re seeing momentum in our package business and continued use of direct mail as anadvertising medium,” he said. “We’ve been effective in developing and marketing our products, andwe’re improving how we leverage data and technology – all providing a higher return on mail formany customers and causing them to take a fresh look at the Postal Service.”

USPS said the quarter’s results were improved as a result of implementing the “exigent” priceincrease – an emergency measure outside of the normal framework – which the Postal RegulatoryCommission has ruled as a surcharge to be collected only until the Postal Service recovers a totalamount of $3.2 billion of incremental revenue, estimated to occur in the second half of 2015. ThePostal Service said it had petitioned the United States Court of Appeals for the District ofColumbia Circuit to review the PRC’s order on the exigent price increase.

“Among other things, the Postal Service’s position is that the PRC improperly and artificiallylimited the amount of relief to which the Postal Service was entitled as a result of the GreatRecession,” USPS said.

Commenting on the results, Fredric Rolando, president of the National Association of LetterCarriers, said: “The figures released today by the Postal Service show an operating profit ofslightly more than $1 billion for the first three quarters of Fiscal Year 2014, continuing theoperating profitability that began in October 2012. The third quarter saw mail revenue increase by$424 million.”

He said this performance was driven by two underlying trends. “As the economy improves, lettermail revenue is growing. And as more people shop online, package revenue is skyrocketing.”

He continued: “The Internet is now a net positive for USPS, auguring well for the future ase-commerce grows. In the third quarter, which the Postal Service’s CFO called “a very good quarterin a lot of ways”, package revenue rose 6.6%, standard mail revenue rose 5.1%, and first-class mailrevenue was up 3.2%.”

Rolando said the red ink at USPS was attributable to non-mail factors – “chiefly the 2006congressional mandate that the Postal Service pre-fund future retiree health benefits, something noother public or private entity is required to do. That $5.6 billion annual charge accounts for mostof the ‘losses’. The other factor this quarter was an adjustment in workers’ compensation interestrates, which the CFO called ‘a technical fair-value adjustment’, just on paper.”

However, Rolando said now was not the time for USPS to reduce its service levels or deliveryfrequencies to reduce costs, as proposed by USPS – which has requested permission to drop Saturdaymail deliveries.

“Given the positive mail trends, it would be irresponsible to degrade services to Americans andtheir businesses, which would drive away mail – and revenue – and stop the postal turnaround in itstracks,” Rolando said. “Lawmakers need to preserve and strengthen the profitable postal networks –which are the future of the USPS as it increasingly delivers not just six but seven days a week –while fixing the pre-funding fiasco.”