Canada Post makes $75m Q3 loss, with accelerating mail volume decline

Canada Post Group has cut its losses for the third quarter of this year by more than half, but warned yesterday that the decline in its mail volumes are accelerating and expected to continue dropping “rapidly”. The group recorded a $75m loss in the three months up to 29th September 2012, compared to a $163m loss seen in the same period last year, when results were affected by the high-profile nationwide network shutdown in June 2011, as management battled workers over a new labour deal.

It is the sixth consecutive quarter in the red for Canada Post Group.

Group revenues from operations fell to $1.75bn in the third quarter of 2012, compared to $1.81bn in the same period last year, a 2% drop.

In the year so far, the Corporation has lost $88m, compared to a $159m loss in the first three quarters of 2011, with revenues improved by 0.7% year-on-year, to $5.54bn for the nine months, thanks to the comparison with last year’s industrial action affected results.

The apparent improvement in results this year has also been affected by last year’s $150m compensation payment ordered by the Supreme Court over a 28-year pay equity dispute.

Canada’s economy has been growing by 2% so far this year, and is expected to improve later in 2013, but Canada’s strong dollar is hitting export volumes, while “restraint” in government spending is reducing consumer demand for goods and services – with continuing economic uncertainty a “primary” factor in Canada Post’s ongoing erosion in mail volumes, particularly for direct mail volumes.

Canada Post, which reported its first loss for 17 years last year, said yesterday that a “historic shift” from paper-based communications to digital alternatives by consumers, businesses and the public sector was another primary factor for continuing declines in mail volumes – mainly affecting transactional volumes.

In the long-term, Canada Post said it is expecting future mail volumes to drop by as much as 50% from their peak levels as more customers use Internet-based communications. In response, it is implementing “aggressive” cost-cutting measures, while pushing for new revenues in direct marketing, data analytics and digital services.

Efforts to transform the business are being stepped up in line with the accelerating mail volume declines, to avoid the company becoming a “burden” on taxpayers, it said.

Canada Post said it was “aggressively” focusing on its parcels business in order to tap the fast-growing ecommerce segment.

Core business

Revenues in the core mail, parcels and digital business dropped by 2.8% year-on-year in the third quarter of 2012, or by $61m, to $1.34bn, and have remained flat over the three quarters of 2012 so far on $4.3bn.

Adjusted for last year’s industrial action, Canada Post said growth in its core mail revenues would have been “significantly negative” this year. The core business made a $91m pre-tax loss in the third quarter, bring its year’s loss to a $114m level up to the 29th September.

Volume comparisons are significantly affected by last year’s industrial action, since last year’s third quarter volumes were swelled by the company dealing with the backlog following the network shutdown.

This year, transactional mail volumes fell by 9% in the three months up to 29th September, 2012, with transactional revenues down 5.1% year-on-year to $686m.

Direct marketing revenues also dropped in the third quarter, by 6.4% to $301m, and by almost a point in the year to date to $930m, with volumes down 7.3% year-on-year in the third quarter and by 2.7% in the year so far.

During the third quarter, the Corporation’s parcels revenue increased by 3.4% to $280m, and in the year to date the business has brought in $59m in additional revenue (a 7% year-on-year growth) totaling $901m. Canada Post said growth in parcel volumes has been flat in the third quarter compared to the same period last year, and 6.8% higher (a 7m piece increase) in the year-to-date.

“Continued growth in parcels is critical to Canada Post’s future success and it will be imperative for us to lower our costs to ensure we remain price competitive in the highly competitive parcel industry,” the Corporation said.

Canada Post’s pension deficit is also continuing to apply pressure to the Corporation’s finances, with $746m in actuarial losses recorded in the third quarter of 2012, bringing the total equity deficit to $3.4bn total.

Labour relations

The conflict over a new labour contract with 48,000 urban-based members of the Canadian Union of Postal Workers (CUPW), which affected last year’s Canada Post results significantly, is close to resolution, with a tentative agreement by negotiators set to be voted on by CUPW members in December.

Canada Post said yesterday that, along with a separate negotiation with CUPW’s rural unit, which covers about 7,000 members, new collective agreements should be in place through to the end of January 2016 for urban workers and the end of December 2015 for rural workers.

Although it recorded the payment in last year’s accounts, Canada Post is actually still to agree a procedure with the Public Service Alliance of Canada (PSAC) to pay out an estimated $150m in compensation to female employees paid up to 50% less than their male equivalents from 1982 to 2002. Yesterday it said some issues had been agreed with PSAC, but other aspects now required another court ruling.

Purolator

Canada Post’s majority-owned courier business Purolator brought in a net profit of $11m for the third quarter of 2012, down 2% on the same period last year. In the year to date, Purolator’s net profit fell 34% to $17m.

The company saw its revenues for the third quarter fall by 0.3% to $394m, but for the year to date revenues have increased 1.6% to $1.2bn thanks to higher volumes.

Purolator’s costs have risen 2.9% in the year to date, partly as a result of the company’s increased spending on labour to cope with understaffing, along with inflationary pressures.