USPS Fiscal Q2 net loss tops $2 billion

Fiscal first quarter earnings issued today by the United States Postal Service (USPS) looked familiar, when compared to recent quarters. 

Revenue, at $17.5 billion, down $8 million annually and essentially flat. Quarterly operating expenses, at $19.6 billion, headed up $751 million, or 4%, annually, and the USPS incurred a net loss of almost $2.1 billion, which represented a $747 million annual uptick, steeper than a $1.3 billion net loss a year ago, while the controllable quarterly loss, at $806 million, was ahead of last year’s $656 million.

For its key service offerings, USPS reported the following:

• First Class Mail revenue fell $217 million, or 3.3%, to $6.276 billion, with volume down 576 million pieces, or 3.9%, reflecting the ongoing migration from mail to electronic communication and transaction alternatives;
• Marketing Mail revenue, fell $155 million, or 3.9%, to $3.833 billion, with volume down by 959 million pieces, or 5.2%, due largely to customers moving over to alternatives like digital advertising; and
• Shipping and Packages revenue at $5.441 billion, was up $253 million, or 4.9%, with volume up 5 million pieces, or 0.3%, driven by continued growth in this lower-contribution service category being paced by e-commerce expansion

“The Postal Service continues to pursue aggressive management actions and to seek legislative and regulatory reforms to address our overall cost structure and enhance revenue-generating opportunities,” said Postmaster General and CEO Megan J. Brennan in a statement. “Our focus remains on meeting the expectations of the American public, continuing to invest in the future of the organization, and continually delivering innovations and increased value for both the senders and receivers of mail and packages.”

And USPS CFO and Executive Vice President Joseph Corbett said that the USPS continues to face challenges from the ongoing migration of mail to electronic alternatives, and is legally limited under current law in how it can price products and streamline legacy costs.

“Within the framework of our current business model, we are executing to grow revenue and reduce operating expenses,” he said.

In a Form 10-Q statement, USPS said in light of its financial challenges, it aims to achieve long-term financial stability, as well as a reduction in debt.

“Our focus on maintaining liquidity and reducing operating expenses reflects current trends, as well as projected future volume of mail and packages,” it said. “We believe that financial stability is within reach with legislative and regulatory reform to address our overall cost structure and enhance our revenue-generating opportunities as we continue to identify and create innovative and affordable services, and deliver high levels of performance and service.”

Despite the USPS’s optimism amid a long-running financial situation, Jerry Hempstead, president of Hempstead Consulting, said things remain dire for the USPS.

“It’s dismal on just about every level,” he said. “First Class Mail, which is the coal that makes the steam to drive the engine that propels the Postal Service, was down again considerably,” he said. “The reason given was continued diversion of information to digital (think banking and finance etc.). When was the last time you got a greeting card? Marketing mail was down considerably.

Interestingly the e-commerce parcel business, was for all intents, flat. Revenue was a different story, because the USPS took parcel rates up for the product that was growing the fastest, Parcel Select. Now we know UPS is finding ways to divert Parcel Select transactions away from the USPS, FedEx is trying to emulate that, and Amazon has purchased and is manning up 20,000 of its own delivery vehicles to deliver packages that would have formerly been completed by the Postal Carrier. We also see new entrants into the e-commerce delivery space like Dicom, Lasership, and existing regionals like LSO and OnTrac.

He added that the USPS is constrained on the revenue side for the market dominant products, and many of the cost drivers are constrained by legislation and mandate.