USPS reports a $5.5 billion FY 2014 net loss and announces top executive change

The United States Postal Service (USPS) today announced that fiscal year 2014 operating revenue increased by $569 million, which was driven by its January 2014 rate increase and an ongoing strong performance in its Shipping and Package group.

Conversely, though, the USPS said it is still faced with regulatory burdens and constraints as it incurred a FY 2014 net loss of $5.5 billion, marking the eighth straight annual net loss. USPS officials said this most recent annual loss highlights the need for legislation to repair its “broken business model.”

A major factor for the broken model is its $5.7 billion for the prefunding requirement of the Postal Service Retiree Health Benefit Fund, coupled with $1.2 billion in non-cash workers’ compensation expense.

“We have grown our revenue for two years in a row, primarily through growth in our package business and price changes, and we are making strong progress in many core areas of our business — from operational performance, to data and technology use, to developing and marketing new products and services — all of which are helping to build a strong foundation for the future of the organization,” said Postmaster General and CEO Patrick R. Donahoe in a statement. “While we still have major issues to resolve with regard to our business model and legislative constraints, our message today is about momentum and progress.”

As a result of growth in its package business and the price increases implemented, the USPS said that Fiscal Year 2014 marks the second consecutive year of revenue growth, reversing a four-year trend of revenue declines that began in 2008.

Donahoe will retire from his position early next year and will be replaced by Megan Brennan, USPS COO, whom will become the 47th Postmaster General and CEO for the USPS.

Despite these issues, the USPS set a new record for productivity en route to growing its package business and also reducing work hours, transportation expenses, and compensation and benefits expenses.

Among the operational metrics and financials for the USPS’s fiscal year 2014 performance were:
-operating revenue was $67.8 billion compared to $67.2 billion in 2013. Without the 2013 one-time adjustment, 2014 operating revenue increased by $1.9 billion over last year’s revenue
-total mail volume was 155.4 billion pieces compared to 158.2 billion pieces a year ago, a decrease of 2.8 billion pieces or 1.8 percent.
-Shipping and Package Services volume grew by 300 million pieces, an increase of 8.1 percent, and First-Class Mail, its most profitable service line, and Standard Mail volume decreased by 2.2 billion and 495 million pieces, respectively
-operating expenses were $73.2 billion in 2014 compared to $72.1 billion in 2013. A non-cash adjustment for interest rate changes associated with workers’ compensation caused $2.2 billion of the increase year over year. This was offset by a $737 million reduction in other workers’ compensation expense and a $708 million reduction in compensation and benefits expenses
-expenses include the required $5.7 billion contribution to the retiree health care benefits fund that the Postal Service was unable to make by the due date of Sept. 30, 2014. Unless legislation reforms the retiree health care benefits program, the Postal Service will likely be forced to default on its prefunding obligations in 2015 and 2016; and
-the resulting net loss for the 2014 fiscal year was $5.5 billion compared to a net loss of $5.0 billion in 2013.

“There are no surprises in the latest report,” said Jerry Hempstead, president of parcel consultancy Hempstead Consulting. “Packages continue to grow because e-commerce continues to drive more purchases into the delivery stream versus us driving to the store.
Much of the financial woes continue to be the legislated payments due to the Treasury. Most onerous being the prepayment of retiree health. The USPS has failed to make this payment for many years now and that debt just continues to accumulate. Unfortunately Congress continues to spend that money due as “anticipated income” and there lies the political dilemma. Nobody on either side of the aisle wants to deal with the elephant in the room. On top of this the USPS is at the very end of its borrowing authority.”

Top executive change: In her current role as USPS COO, which she assumed in December 2010, Brennan oversees day-to-day activities of 491,000 career employees working in more than 31,000 facilities supported by a fleet of more than 200,000 vehicles and is responsible for all Postal Service operations, including mail processing, transportation, delivery and retail operations.

A 28-year USPS veteran, Brennan was previously vice president of Eastern Area Operations, where she oversaw an area that encompassed Pennsylvania, Ohio, West Virginia, Delaware, Kentucky, Central and South Jersey, Western New York and parts of Virginia and Indiana.  She also served as vice president of Northeast Area Operations from May 2005 until being named vice president of Eastern Area Operations. Brennan joined the Postal Service in 1986 as a letter carrier in Lancaster, Pennsylvania, and began her management career as a delivery and collection supervisor, the USPS said. 

“What a wonderful job Pat Donahoe has done navigating the USPS these past years,” said Hempstead. “It has not been easy and he has done a yeoman’s job. He has reduced costs, made service far more consistent and has the respect of everyone who works with him as a talented and visionary leader. There isn’t anyone on the planet that is more qualified to succeed him in the role as PMG than Megan Brennan. Both Pat and Meg know the operation of the USPS from the bottom up, because they have done every job from the bottom up. Both have earned their stripes. They know what the USPS is capable of, they know the impediments of living in a quasi-governmental world, and they know the myriad nuances of getting mail and packages delivered in a cost effective and consistent way. I’m thrilled that Pat can ride off into the sunset knowing he has done an outstanding job and that he leaves the role in the most competent of hands in Meg Brennan who is clearly the right choice to succeed Pat.”