USPS posts Q1 loss of $297m
USPS ended the first-quarter of this fiscal year with a net loss of $297m, for the period ending 31 December 2009. The financial results reflect continued effects of the recent recession, as well as continued migration of mail to electronic alternatives. The quarter ending December 31 is typically the strongest quarter for the Postal Service due to seasonal business and holiday mailings. A first-quarter 2010 revenue decline of 3.9% and expense decline of 4.4% resulted in a net loss of $297m, a slight improvement compared to the net loss of approximately $384m for the same period in 2009. First-quarter volume was 45.7bn pieces, compared to 50.2bn in the same period last year, or 8.9% below 2009. Total operating revenue for the quarter was $18.4bn, compared to $19.1bn in the first quarter of 2009.
“Unfortunately, economic drivers that significantly affect mail volumes, such as continuing high unemployment levels and lower investments, appear to be lagging general economic recovery and last quarter’s growth in GDP (gross domestic product),” said Joseph Corbett, chief financial officer and executive vice president. “This situation, coupled with the growth in electronic alternatives to mail, creates a very challenging environment.”
Some economic indicators point to the beginning of a slow recovery, but downward pressure on mail volumes is expected to continue throughout 2010. “Our volume for 2010 is projected to be approximately 167bn pieces, a decline of approximately 10bn pieces from last year’s total,” Corbett said.
The first quarter loss is not unexpected, despite ongoing aggressive cost reduction initiatives. Fiscal year 2009 cost savings totaled $6bn and efforts continue into 2010. USPS reduced work hours for the first quarter by more than 28m, or the equivalent of 15,800 full-time employees – on top of a reduction of 115m work hours, or the equivalent of 65,000 full-time employees last fiscal year. Work-hour reductions are achieved through continued efficiency improvements and matching workloads to lower mail volumes. In many categories, USPS has gone beyond savings attributable only to lower volumes. For example, while first quarter volumes declined 8.9%, mail processing hours were driven down by more than 14%.
With net losses reported for 2007, 2008 and 2009, the continued negative trend in fiscal 2010 raises significant uncertainty about the Postal Service’s ability to generate sufficient cash flows to fund large cash payment obligations in September and October 2010.
The situation is compounded by the requirement established in postal reform legislation of 2006 that the organisation pay $5.4bn to $5.8bn annually to prefund 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.
