USPS reports $1.3 billion loss for FY 2013 first quarter

The United States Postal Service (USPS) announced late last week that it finished the first quarter of fiscal year 2013 with a net loss of $1.3 billion, coming off of a fiscal year 2012 loss of $15.9 billion.

This earnings release follows an announcement made by the USPS last week, when it said that it plans to implement a new delivery schedule in August. The schedule will be comprised of Monday-Saturday package delivery and Monday-Friday mail delivery, which the USPS said would result in roughly $2 billion in annual savings. This plan also factors in employee reassignment and attrition, said the USPS.

For the fiscal first quarter, USPS said that total mail volume of 43.5 billion pieces was down 1 percent annually, with First Class volume down 4.5 percent and Standard Mail volume up 3.6 percent, due in part to Election season. Operating revenue—at $17.7 billion—was down $17 million, or less than one percent, and operating expenses—at $18.9 billion—were down 9.8 percent.

In regards to First Class Mail, which has traditionally been its most profitable offering, the USPS said that revenue fell 3.1 percent—or $237 million, adding that the 4.5 percent volume decline of 854 million pieces was due in large part to an ongoing diversion from paper to electronic communications, including e-mailing business documents and online purchasing orders, as well as other electronic mailing processes.

On a more positive note, quarterly Shipping and Package volume were up 4.0 percent. These services are comprised of Priority Mail, Express Mail, Parcel Select and Parcel Return services and account for 2.2 percent of total USPS volume and 17.8 percent of total revenue.

Shipping and Package revenue rose $154 million—or 4.7 percent—annually. USPS officials said its strong performance was spurred by the growth in online shopping and its marketing efforts designed to showcase the value of these services. Last-mile services have also served as drivers for its strong performance.

The USPS said its Parcel Select and Parcel Return services revenue was up 19.2 percent as the USPS continues to leverage its competitive advantage for last-mile service. And First Class Package revenue was up $52 million—or 13.2 percent annually.

“The encouraging results from our holiday mailing season cannot sustain us as we move deeper into the current fiscal year and face continuing financial challenges,” said Postmaster General and CEO Patrick Donahoe. “By moving forward with the accelerated cost-cutting actions directed by our Board of Governors, we will continue to become more efficient and come closer to achieving long-term financial stability. We urgently need Congress to do its part and pass legislation that allows us to better manage our costs and gives us the commercial flexibility needed to operate more like a business does. This will help ensure the future success of the Postal Service and the mailing industry it supports.”

The USPS expects these sizable losses to continue until key provisions of the USPS five-year business plan, including removing Saturday mail delivery, move forward.

The objective of the five-year plan is to reduce annual costs by at least $20 billion by 2015. And along with its goal of $20 billion in annual reductions by 2015, the USPS would like to see annual savings rise to $22 billion by 2016. The plan’s goals include:
-eliminating the fund to pay future retiree health benefit premiums and is proposing to provide employee health benefits independent of federal programs, which it said would save the USPS $7.1 billion annually;
- moving from six days per week delivery to five days per week, which would result in an annual cost reduction of $2.7 billion; and
- pursuing the realignment of its mail processing, retail, and delivery operations, which would result in a savings of $8.1 billion annually and also seek other significant cost reductions to grow or retain revenues within its current business model.
Of the $20 billion in targeted savings within the next five years, the USPS said about $10 billion requires legislative action.
“Things like consolidating processing plants and streamlining our retail network, including post offices, and meeting our customers where they are already doing their shopping and where they work and live and offering retail products in existing stores and getting away from so much reliance on brick and mortar post offices is a goal,” said a USPS spokesman in an interview. “Those are examples of things we can do on our own without a change in legislation.”
When the USPS reported its fiscal year 2012 results in November, it said it incurred a record net loss of $15.9 billion for fiscal year 2012, compared to a $5.1 billion loss in fiscal year 2011.

Representing $11.1 billion—or nearly 70 percent—of this loss are mandated prefunding health retiree benefits which are part of a Congressionally-mandated 10-year payment schedule at an average of about $5.5 billion per year to create a fund to pay future retiree health benefit premium, among others.  Last summer, the USPS announced it could not make $5.5 billion in mandated prefunding health retiree benefits to the Treasury, which was due August 1, as well as a $5.6 billion payment that was due on September 30.

The USPS has been unable to fund this obligation from operations and has used all of its retained earnings and drawn down from its $15 billion borrowing authority from the U.S. Treasury. And even with the requested increase, the USPS would not be able to meet this annual obligation at the present time or in subsequent years, according to the Postal Regulatory Commission.