USPS: Q2 $1.9 billion loss highlights continued urgent need for comprehensive legislation
Monday, May 13, 2013
WASHINGTON — The U.S. Postal Service ended the second quarter of its 2013 fiscal year (Jan. 1 – March 31) with a net loss of $1.9 billion. The Postal Service continues to grow revenue and reduce expenses by using the tools available to it under existing law. However, without passage of comprehensive legislation to provide the Postal Service with a workable business model for today’s marketplace, large quarterly financial losses will continue.
"To return the Postal Service to solvency requires a comprehensive approach, which is reflected in our updated Five-Year Business Plan," said Postmaster General and CEO Patrick Donahoe. "The plan provides an achievable roadmap to restore financial stability and preserve affordable mail service for the American public. The major elements of the plan must be pursued and executed within a short window of opportunity to avoid unsustainable losses and potentially becoming a long-term burden to the American taxpayer."
The Postal Service needs to save $20 billion annually by 2016. Many of the savings cannot be achieved without the following legislative action:
- Require a USPS Health Care Plan (resolves the Retiree Health Plan prepayment issue)
- Refund the FERS overpayment and adjust the FERS payment schedule
- Adjust delivery frequency (six-day package/five-day mail delivery)
- Streamline the governance model
- Allow USPS the authority to expand products and services
- Require a defined contribution retirement plan for future postal employees
- Provide instructions to arbitrators to consider USPS’s financial condition in interest arbitration awards
- Reform workers’ compensation
The Postal Service has already reached its debt limit of $15 billion. It also has defaulted on $11.1 billion due for retiree health benefits in 2012 and also expects to default on an additional $5.6 billion on September 30, 2013. In addition, the Postal Service owes an estimated $17 billion on future workers’ compensation claims. "These obligations of nearly $50 billion and continuing losses highlight the need for immediate legislative reform to give us the latitude to execute on our Five-Year Plan and improve our ability to repay these obligations and return to profitability," said Chief Financial Officer Joe Corbett.
Corbett says the plan also requires aggressive actions to increase operational efficiency and improve the Postal Service’s liquidity position, including the accelerated consolidation of mail processing, retail and delivery networks in order to better align them with mail volumes and changing customer needs and continued administrative reductions.
The Postal Service also continues to reduce costs by reducing work hours. In the second quarter, work hours were reduced by approximately 7 million hours, a 2.4 percent reduction compared to the same period last year. "Even with a 6.2 percent volume increase in Shipping and Packages compared to the same period last year, we were able to reduce these work hours to increase efficiency," Corbett added, noting that work hour reductions have been the single largest contributor to the ongoing achievement of savings targets.
The number of career employees decreased by approximately 25,000 in the second quarter and by 46,000 in the last year. These reductions have been accomplished primarily through attrition and separation incentives. The Postal Service now has the lowest number of career employees since 1966.
Second Quarter Results of Operations Compared to Same Period Last Year
- Total mail volume of 38.8 billion pieces compared to 39.4 billion pieces
- First-Class Mail revenue declined 2.7 percent on a volume decline of 4.1 percent
- Standard Mail revenue increased 2.4 percent on a volume increase of 1.0 percent
- Shipping and Package revenue increased 9.3 percent on a volume increase of 6.2 percent
- Operating revenue of $16.3 billion, an increase of $121 million or 0.7 percent. The slight increase is attributable to the strong growth in Postal Service Shipping and Packages business supplemented by a modest increase in Standard Mail revenue, offset by the decline in First-Class Mail.
- Operating expenses of $18.2 billion compared to $19.4 billion, a decrease of 6.2 percent. The large decrease reflects last year’s accrual for the additional retiree health benefit prefunding payment and reduced 2013 work hours.
While the continuing shift to electronic communication alternatives had a pronounced negative effect on First-Class Mail volume and revenue, the growth of e-commerce and successful marketing campaigns continued to grow Postal Service Shipping and Package business. Total Shipping and Packages revenue in the second quarter increased $267 million, or 9.3 percent, compared to the same period last year. For the six months ended March 31, Shipping and Package revenue is up 6.9 percent. The increases are reflective of successful efforts to take advantage of the growing area of shipping and packages and compete in the ground shipping services and "last-mile" e-commerce fulfillment markets.
Standard (Advertising) Mail revenue in the second quarter increased over the same quarter in the previous year, the second consecutive quarter of growth. Standard Mail revenues were $96 million, or 2.4 percent, greater in the second quarter compared to the same time last year. The year-to-date revenue increase totals 2.8 percent, on a volume increase of 2.4 percent. The year-to-date increase is largely attributable to political and election mail in the first quarter. Promotional incentives for advertisers introduced in the second quarter designed to promote the integration of mobile technologies into marketers’ direct mail pieces are expected to further boost Standard Mail revenue later in the fiscal year.
First-Class Mail revenue, the Postal Service’s most profitable service category, decreased $198 million, or 2.7 percent, in the second quarter compared to the same period last year, with a volume decrease of 713 million pieces, or 4.1 percent. The most significant factor contributing to the ongoing decline continues to be the migration toward electronic communication and transactional alternatives.
Complete financial results are available in the Form 10-Q, available after 10 a.m. ET today athttp://about.usps.com/who-we-are/financials/welcome.htm