The US Postal Service increased its package volumes by a dramatic 14.4% between January and March 2015 driving a modest 1.3% revenue increase, but it still closed the quarter with a $1.5 billion loss due to high health benefit costs.
The US postal operator increased overall revenue by 1.3% to $16.9 billion with higher parcel and stable mail revenues in the second quarter of its 2014/15 fiscal year. It also reduced operating costs by 0.9% to $18.4 billion, driven in part by favourable trends in workers’ compensation expenses.
Shipping and Packages revenues increased by 10.4% to $3.6 billion in the January – March quarter with volumes up by 14.4% to 1.1 billion items. Over the first six months of the fiscal year, USPS increased its package volumes by 14.2% to 2.3 billion pieces, boosted by seasonal holiday packages, while revenues were up by 11.2% to $7.8 billion. The business now accounts for 22% of USPS’ total revenues.
Commenting on the six-month trends, USPS said: “Shipping and Packages revenue continued to show solid volume growth as a result of our successful efforts to compete in the ground shipping services and “last mile” e-commerce fulfillment markets which include Sunday delivery growth. Volume also experienced strong end-to-end growth as we responded to customers’ increased usage of online shopping, which provided a surge in package volume with a record number of packages delivered during the 2014 holiday season. To accommodate this surge in volume and minimize service disruptions during the holiday season, we provided Sunday delivery service in limited U.S. markets.”
“Shipping and Package Services are a key business driver, however, operating margins in this business are lower than in mailing services,” said Chief Financial Officer and Executive Vice President Joseph Corbett.
First-Class Mail and Standard Mail volume declined by 2.1% and 1.1%, respectively, in the second quarter. Overall revenues remained stable at $11.3 billion, however, thanks to price increases.
The net loss for the quarter was $1.5 billion compared to a net loss of $1.9 billion for the same period last year. Excluding the controversial retiree health benefit prefunding expense, the net losses would have been $44 million and $447 million, respectively, for the quarters ended 2015 and 2014, the postal operator pointed out.
Moreover, controllable income in the second quarter was $313 million, an increase of $52 million over the same period last year. “This increase is primarily attributable to efforts associated with continued cost-cutting initiatives and enhanced revenue from strong shipping and package volume,” USPS said. Controllable income is defined as net income excluding retiree health benefits prefunding expense and expenses for interest rate and other non-cash workers’ compensation expense, which are factors outside of management’s control.
“We’re pleased with the increase in our controllable net income compared to the same period last year, which demonstrates that our cost containment and revenue strategies are delivering results,” said Postmaster General and Chief Executive Officer Megan Brennan. “We also took significant steps during the quarter to improve our long-term operating model, which will help drive greater long-term efficiencies throughout our network.”
The Postal Service ended the quarter with $6.1 billion in unrestricted cash, representing 22 days of operating cash. Considering that the Postal Service has reached its borrowing limit of $15 billion, the current level of available liquidity is not sufficient to support both operations and prefund retiree health benefits, it warned.
