USPS loses another $1.9bn
USPS will post a six-month net loss of $1.9bn, said postmaster general John Potter, as he outlined cost-cutting plans. Declining mail volumes stand at 88.1bn pieces for the period, ended March 31 2010, further evidence that the Postal Service continues to face incredible challenges.
Potter reinforced the need for legislative and regulatory changes necessary to maintain a viable Postal Service. Two of those changes could save the Postal Service more than $8.5bn in the first full year they are implemented: restructuring the prepayment of retiree health benefit payments and eliminating one day of delivery service per week.
Despite the ongoing financial challenges, Potter commended employees for continuing to take costs out of the system and maintain high rates of customer service.
CFO Joseph Corbett reported that the 2010 mid-year financial results reflect the continuing effects of both the recent recession and the migration of mail to electronic alternatives. Corbett noted that for the foreseeable future, the Postal Service expects to see continuing declines in First-Class Mail, the most profitable class of mail.
For the three months that ended on March 31, total volume was 3.3% less than the same period in 2009. Even with a one-time boost of $180m of First-Class Mail revenue related to the Census, revenue at $16.7bn was still 1.4% less than the same period a year ago.
In contrast to the continuing declines in mailing services, the competitive products, shipping services, that account for 12% of total revenues and consist primarily of Priority Mail and Express Mail, grew 5.7%.
Operating expenses were down 3.1% from a year ago and the net loss was reduced by over $300m.
For the first six months of the fiscal year, operating losses totaled $1.8bn in 2010 compared to $2.3bn in the previous year. Included in the March 31 quarterly and year-to-date operating losses are expenses of $1.9bn and $3.8bn, respectively, to fund retiree health benefits.
Aggressive measures to reduce costs continue. Work hours during the first half of the year were reduced 49m hours below the previous year. Total mail volume decreased 6.3% during the first-half of the year, but managerial initiatives have reduced work hours by 12.7% in mail processing and 11.6% in customer services. For the year to date, overall expenses have been reduced $1.4bn or 3.8% below the previous year.
“Despite aggressive efforts to reduce costs, including the reduction in full-time equivalent employees by more than 120,000 since 2008, we are still experiencing unsustainable losses,” said Corbett. “Quite simply, the business model is broken and laws, regulations and contracts must be changed to provide commercial operating flexibility needed for financial stability.”
At mid-year, the number of career employees stood at 594,000 at mid-year, a reduction of 47,000 compared to the previous year.
With net losses reported for fiscal years 2007, 2008 and 2009 and continuing in 2010, the Form 10-Q will emphasise the continued significant uncertainty about the Postal Service’s ability to generate liquidity to fund large cash payment obligations in 2011.
The Postal Service’s liquidity challenge is compounded by the requirement established in postal reform legislation of 2006 that the organisation pay $5.4bn to $5.8bn annually to prefund future retiree health benefits – a requirement no other government or private sector organisation faces. Last year, Congress enacted legislation to restructure the payment for 2009. However, there is no assurance that similar adjustments will be granted in 2010, or at all.
