Postal Service Ends Third Quarter with $5.2 Billion Loss
Aug 09, 2012, 10:49 ET
Legislative Changes Are Still Urgently Needed to Restore Financial Health
Resolving Prefunding of Retiree Health Benefits is Not Enough to Curtail Financial Losses
Bright Spot: 9% Revenue Growth in Shipping & Packages
WASHINGTON, Aug. 9, 2012 /PRNewswire-USNewswire/ -- 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, available after 10 a.m. ET today at http://about.usps.com/who-we-are/financials/welcome.htm
A self-supporting government enterprise, the U.S. Postal Service is the only delivery service that reaches every address in the nation — 151 million residences, businesses and Post Office™ Boxes. The Postal Service™ receives no tax dollars for operating expenses, and relies on the sale of postage, products and services to fund its operations. With 32,000 retail locations and the most frequently visited website in the federal government, usps.com®, the Postal Service has annual revenue of more than $65 billion and delivers nearly 40 percent of the world's mail. If it were a private sector company, the U.S. Postal Service would rank 35th in the 2011 Fortune 500. In 2011, Oxford Strategic Consulting ranked the U.S. Postal Service number one in overall service performance of the posts in the top 20 wealthiest nations in the world. Black Enterprise and Hispanic Business magazines ranked the Postal Service as a leader in workforce diversity. The Postal Service has been named the Most Trusted Government Agency for six years and the sixth Most Trusted Business in the nation by the Ponemon Institute.
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SOURCE U.S. Postal Service