USPS reports fiscal first quarter revenue gain but it is outweighed by steep net loss

Familiar themes, for both volumes and earnings, remained intact for the United States Postal Service (USPS), based on fiscal first quarter results released today.

Quarterly revenue, at $19.7 billion, saw a 2.9%, or $553 million, annual increase, but the USPS incurred a $1.5 billion net loss, which represents an increase in net loss of nearly $1 billion compared to last year’s fiscal first quarter.

For its key service offerings, USPS reported the following:

• First Class Mail revenue, which accounted for 34% of USPS revenue, fell $81 million, or 1.2%, to $6.6 billion, with volume down 428 million pieces, or 2.8% annually, to 14.8 billion pieces;
• Marketing Mail revenue, which accounted for 24% of USPS revenue, was up $218 million, or 4.9%, to $4.6 billion, with volume growth 1 billion pieces, or 4.8%, to 22 billion; and
• Shipping and Packages revenue, which accounted for 33% of USPS revenue, at $6.4 billion, was up $516 million, or 8.7%, with volume up 93 million pieces, or 5.4%, to $1.8 billion

“We continued to drive growth in our package business and expanded use of the marketing mail channel during the quarter,” said Postmaster General and CEO Megan J. Brennan in a statement. “Nevertheless, we face ongoing financial challenges. We remain focused on aggressive management of the business, legislative reform, and pricing system reform, all of which are necessary to put the Postal Service on firm financial footing. “Our nation is best served by a financially sustainable Postal Service that can invest in its future and meet the evolving mailing and shipping needs of the American public.”

And USPS Chief Financial Officer Joseph Corbett said that fiscal first quarter volumes were paced by gains in the organization’s Marketing Mail package business, which resulted in total revenue growth of $553 million. But he noted that this growth was offset by increased work hours and related salaries and benefits, increases in transportation costs due to these higher volumes and the continued focus on meeting customers' needs.

In regards to the ongoing volume and revenue declines for First Class Mail, the USPS again cited, in its Form 10-Q statement, an ongoing migration to electronic media that has resulted in significant volume declines for the segment over the last decade. As for Marketing Mail, it stated that volume had remained “relatively steady” going back to 2009, while the segment’s volume rate fell at a higher level in 2017 and continued on that path through the first half of 2018 prior to rebounding in the second half of 2018 into the fiscal first quarter of 2019, due to increases in political and election mail related to the 2018 United States mid-term elections.

The USPS’s Shipping and Packages group continues to remain a very bright spot, with revenue and volume gains driven by its successful efforts to compete in various shipping services, including last-mile e-commerce fulfillment markets, Sunday delivery, and end-to-end markets, with the caveat that the rate of growth is slowing.

“Volume growth has been driven by consumers’ continued use of online shopping, which provided a surge in package volume with a record number of packages delivered during both the calendar year 2017 and 2018 holiday seasons,” said the USPS. “To accommodate this surge in volume and to avoid service disruptions during the peak holiday seasons, we increased Sunday delivery service for some of our customers in limited U.S. markets and added non-career employees for the peak seasons in accordance with our labor agreements.”

The individual segments within the Shipping and Packages group saw decent volume and revenue growth, with: Priority Mail Services revenue up 4.6% to $2.9 billion and volume up 3.8% to $321 million pieces; Parcel Services revenue up 11% to $2.1 billion and volume up 4.2% to 946 million pieces; First-Class Package Services revenue was up 15.2% to $1.15 billion and volume was up 15% to 378 million pieces; and Package Services revenue slipped 1.4% to $219 million and volume was down 3.9% to 173 million pieces.

Within the USPS’s Parcel Services group saw volume and revenue gains, the USPS noted that it is a last-mile service that bypassed much of its infrastructure and is subsequently one of its lowest-priced package revenue services, which produces a lower yield per piece compared to other USPS service offerings. And it added that revenue outpaced volume for this segment, due to the rate increases that took effect in January 2018 that were applicable to its competitive services.

“This quarter was very disturbing,” said Jerry Hempstead, president of Hempstead Consulting. “The losses increased by $1 billion versus the same period last year even though Marketing Mail and Shipping and Packages had significant growth. The fact is that salaries, benefits and the cost of additional transportation for the increase on packages drove up costs and, of course, the continual decline of First Class Mail, which is really the coal that stokes the engine that is supposed to pull the train just eats away at the balance sheet. The USPS does not lack volume. They have tons of it. The problem is the USPS is not allowed, by law to just have the cost of postage cover all the operating costs. Congress has yet to address the needs of the USPS. They just keep kicking the can down the street.”