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USPS Ends Third Quarter with $5.2 Billion Loss

Friday, August 10, 2012

Press release from the issuing company

The Postal Service ended its third fiscal quarter (April 1 – June 30) with a net loss of $5.2 billion, compared to a net loss of $3.1 billion for the same period last year. Contributing significantly to the quarter’s $5.2 billion loss was $3.1 billion of expense for the legislatively mandated prefunding of retiree health benefits. These expenses, along with the continued decline of First-Class Mail volume, more than offset the quarter’s 9 percent growth in revenue from Shipping Services and package delivery. Despite continued success in generating new package delivery revenue, improving efficiency and reducing costs, large losses are expected to continue until legislative changes are made in line with the Postal Service Business Plan to return to financial stability.

The Postal Business Plan includes measures that require urgent legislative changes, including:

  • A refund of $11 billion of pension plan overfunding needed to pay down debt and invest for future growth
  • Transition to a five-day schedule of weekly mail delivery
  • The elimination of prefunding for retiree health benefits with the introduction of a Postal health insurance program, independent of the current federal programs.

“We remain confident that Congress will do its part to help put the Postal Service on a path to financial stability. We will continue to take actions under our control to improve operational efficiency and generate revenue by offering new products and services to meet our customers changing needs,” said Postmaster General and CEO Patrick Donahoe. “Moving forward with our business plan will make the Postal Service financially self-sustaining, provide a platform for future growth and preserve our mission to provide secure, reliable and affordable universal delivery services for generations to come.”

The Postal Service was forced to default on a $5.5 billion prefunding payment for retiree health benefits on Aug. 1, due to insufficient cash resources. Absent legislative changes, the Postal Service will also default on a second similar payment of $5.6 billion due by Sept. 30, 2012. Current projections show very low levels of cash, and no remaining borrowing capacity, at the end of the current fiscal year and through October 2012. In response, the Postal Service will continue to prioritize payments to employees and suppliers to ensure completion of its mission to provide high-quality mail service to the American people.

“The Postal Service has successfully improved productivity while removing nearly $14 billion from its annual cost base during the past five fiscal years,” said Acting Chief Financial Officer Stephen Masse. “These operational actions to improve efficiency will continue in the future, but we urgently need the legislative changes noted above to restore our short-term liquidity and provide a stable base for the future. In the meantime, we will prioritize our cash resources to ensure that we deliver on our mission.”

Results of Operations
New products and successful marketing campaigns continue to fuel growth in the Postal Service package business. Shipping Services and package revenue totaled $3.3 billion in the third quarter, a 9 percent increase, on a volume increase of 43 million pieces, or 5.2 percent. Additionally, Every Door Direct Mail continues to grow as local businesses capitalize on the product’s targeted advertising impact and ease of use.

Other details of the third quarter results compared to the same period last year include:

  • Total mail volume of 38.5 billion pieces, a decrease of 1.4 billion pieces, or 3.6 percent. This reflects the continued decline of First-Class Mail (volume decline of 4.4%) due to the on-going shift of communications and transactions to electronic alternatives;
  • Operating revenue of $15.6 billion, a decrease of $153 million, or less than 1 percent;
  • Operating expenses of $20.8 billion increased by $1.9 billion, or 10.2 percent. This increase was driven by $3.1 billion of expenses for mandated prefunding of retiree health benefits, which unfortunately cannot be paid in cash.

The third quarter results bring the year to date net loss to $11.6 billion, compared to $5.7 billion for the same period last year. Contributing significantly to the year to date loss was the $9.2 billion expense accrual for the prefunding of retiree health benefits, which unfortunately cannot be paid.

Complete financial results are available in the Form 10-Q at http://about.usps.com/who-we-are/financials/welcome.htm

The Postal Service receives no tax dollars for operating expenses and relies on the sale of postage, products and services to fund its operations.

 

Discussion

By Andrew Gordon on Aug 10, 2012

Revenue is down slightly, mail volume continues to contract, Every Door is doing well, and shipping services are expanding. All the while, USPS posts a significant loss which could be fixed by congress. What stuns me is the comment regarding cash flow and how the postal service is prioritizing payments. Sounds like insolvency? If the government was an investor, it would demand quick action. Thoughts?

 

By Clint Bolte on Aug 13, 2012

Jessica Lowrence, Postcom Executive Vice President, highlighted the two postal bills going through Congress at the recent Postal Vision 2020 Conference. S1789 passed the Senate and HR2309 is going through the House. The Senate bill gives back $11 billion in overpayment, but stipulates it may not be used for investment, only debt repayment. It limits Executive pay and forces management to contribute to their health insurance cost. They allow management to negotiate health care costs with the unions so long as the employee benefits do not fall below those offered in 1984! The Senate requires that the arbitrator CAN consider the USPS financial condition in their union negotiations (not should but CAN).

It places a 3-year moratorium on facility closures, 2-year moratorium on the 5-day service week issue, and a 1-year moratorium on rural post offices. It gives the PRC the ability to stop closures, limits their time frame for advisory opinions to 90-days, and stipulates that they conduct studies after 3 years on products “under water.”

The Senate Bill creates a Chief Innovation Officer position and establishes a Strategic Advisory Commission on Solvency and Innovation. Neither of these organizational initiatives appear to report to anyone nor dictate that the USPS must follow their recommendations.

It reemphasizes that the USPS may not compete with the private sector. They may ship wine and distilled beverages. They must maintain overnight delivery service standards for first class mail and periodicals but make no comment on cost implications.

The differences between the House and Senate bills are such that the compromise legislation may not be resolved (and therefore become law) in this legislature according to Ms. Lowrence.

 

By Andrew Gordon on Aug 14, 2012

Thanks Clint. Don't you think it is time for congress to either allow the postal service to be privatized or to be a true public service? I'm ok with both approaches, however it seems to be stuck in the middle.

 

By Christopher George on Aug 14, 2012

For years and years the USPS expanded to meet the population growth - then, the internet revolution changed everything. Now, they simply need to consolidate and reduce their footprint while increasing revenues through popular programs like Every Door Direct Mail.

The fact that any business, organization, or individual can launch a design, print, and mail campaign online (http://www.everydoordirectmail.com) is a step in the right direction.

 

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