USPS records $3.3bn loss in Q1, despite “remarkable” parcel growth
The US Postal Service has had a “remarkable” first quarter of the year according to its chief financial officer – but the three months up to December 31 still brought in a net loss of $3.3bn. Joe Corbett told the USPS Board of Governors this morning that the Postal Service achieved a 9% growth in parcel volumes during the period, compared to the same quarter 12 months previously. Package revenues grew 7%, a $179m increase on the same period last year.
The USPS CFO also said productivity had increased substantially during the quarter with 8m hours taken out of the work force, reducing labour costs by $100m, although increased fuel prices had added a similar figure to transport costs.
“By any objective measure, we just completed a remarkable quarter,” Corbett told the USPS governors, commenting of growth in USPS package volumes: “This was more than double our two large competitors – a tremendous performance.”
However, Corbett said declines in First Class Mail and Standard Mail had offset the gains in shipping services and from cost-cutting. The market-dominant products saw $650m in reduced revenues this quarter, a 3.7% drop, blamed on the shift towards Internet communications, which is expected to continue for the “foreseeable future”.
“These declines are dwarfing the great things we are doing in package services,” he said.
First Class Mail, which accounts for around half of USPS revenue, has seen volumes falling 25% since 2006. The high-growth package services only represent around 17% of USPS revenue, and therefore cannot counter the decline in traditional mail volumes.
This quarter saw an overall 6% drop in the number of mailpieces flowing through the USPS network, down to 43.7bn pieces in the three months. Overall USPS operating revenue dropped $200m (1.1%) compared to the first quarter in the previous year, to $17.7bn, while operating expenses increased 1% to $17.8bn, not including health benefits prefunding or workers compensation liability costs.
Corbett said today there were now significant liquidity concerns at USPS, which is nearing its $15bn government debt limit, commenting that October would be a crucial month, with the Postal Service projected to run $300m beyond its available cash reserves.
“We spend $220m a day – this is a large business. We are projecting cashflows in any year of $140bn, and if we are 99% correct in our projections that 1% error is $1.4bn. Our best forecast at this point in time shows that in October we will be approximately $300m below the cash that we will have.
“We will weather that storm, but if there is any hiccup we may not,” the CFO warned. He said USPS should have $7bn in cash reserves to be considered to be running as a healthy business.
The operating plan for USPS in the full 2012 fiscal year projects a net loss of $14.1bn, with $11.1bn of that stemming from Congressionally required payments covering 40 years of future retiree healthcare liabilities. The plan, based on a weak economic outlook, assumes that revenues will reduce to $64bn this year, while operating costs fall to $67bn thanks to efforts to take 58m workhours out of the system during the year.
The USPS is currently awaiting an advisory opinion from regulators before it can make major cutbacks to its processing network, something scheduled to take until July. It is currently looking to close more than 3,000 post offices, but has agreed a moratorium on closures until mid-May.
Corbett said of the $20bn in annual operating cost reductions that the Postmaster General Pat Donahoe believes are necessary before 2015 if USPS is to survive, only about $10bn can be made by USPS itself.
“We have to make sure that we do that,” he said, “but for the other $10bn we need big legislative changes from Congress.”
Paycheck to paycheck
The US mailing industry reacted to today’s Q1 figures with “grave concern”.
The Coalition for a 21st Century Postal Service, a group of businesses dependent on USPS for their livelihoods, urged Congress to pass the postal reform bill currently moving through the US Senate, which could return around $11bn in pension fund overpayments, restructure health benefit system payments, and provide help for USPS to cut its costs and expand its range of services.
Art Sackler, the group’s co-ordinator, said every day that Congress delays passing reform legislation made it more and more difficult and expensive to resolve the problems at USPS.
“We have a Postal Service that essentially is living from paycheck to paycheck, which is a very risky proposition for the American economy and the 8m private sector workers whose jobs rely on the mail,” said Sackler.
“A great financial quarter isn’t going to save the Postal Service, but a terrible financial quarter could sink it. That’s why Congress needs to pass postal reform legislation now.”