USPS reports a $1.5 billion net loss for fiscal second quarter

Late last week, the United States Postal Service (USPS) announced it had a $1.5 billion net loss for the fiscal second quarter compared to a $1.9 billion net loss for the same period last year. This follows a fiscal first quarter net loss of $754 million and a $5.5 billion fiscal 2014 net loss.

While it incurred another quarterly net loss, the USPS saw a 1.3 percent––or $223 million––annual gain in operating income to $16.9 billion, which was driven by its ongoing strong performance in its shipping and package volume that was up 14.4 percent compared to a year ago, with revenue up 10.4 percent to $3.6 billion.

Quarterly operating expenses fell by $160 million––or 0.9 percent––to $18.4 billion.

Even with signs of bottom line improvements, the USPS continues to feel the sting of its mandated prepayment towards the Postal Service Health Benefits Fund.

As previously reported, the USPS remains hamstrung by its retiree health benefits prefunding payments, which it has been unable to meet, due to a lack of capital. What’s more, it continues to ring the bell for Congress to draft and sign legislation into law to not only reduce the payments, which it has been unable to meet, but also includes a smarter delivery schedule, greater control over its personnel and benefit costs, and more flexibility in pricing and products to provide the necessary cash flows.

Taking that a step further, the USPS said that when removing its retiree health benefit prefunding expense, its net losses would have been smaller at $44 million and $477, respectively, for the fiscal second quarters in 2015 and 2014.

And it also saw progress in controllable income, which it defines as net income excluding retiree health benefits, prefunding expense and expenses for interest rate and other non-cash workers’ compensation expense that it said are factors outside of the control of management. Fiscal second quarter controllable income was up $52 million annually at $313 million, due in large part to ongoing cost-cutting initiatives and increased revenues as a result of improved shipping and package volume.

“We’re pleased with the increase in our controllable net income compared to the same period last year, which demonstrates that our cost containment and revenue strategies are delivering results,” said Postmaster General and Chief Executive Officer Megan Brennan in a statement. “We also took significant steps during the quarter to improve our long-term operating model, which will help drive greater long-term efficiencies throughout our network.”

Among the operational metrics and financials for the USPS’s fiscal second quarter performance include:
-total volume of 37.7 billion pieces, which was down 1.3 percent annually;
-a 14.4 percent annual gain in Shipping and Package volume to 1.1 billion pieces (this group accounts for 22 percent of revenues)
-First-Class mail, the USPS’ most profitable service line, saw volume drop 2.1 percent to 15.775 million pieces;
-Standard Mail volume (which represents about 50 percent of total USPS volume) down 1.1 percent to 19.103 million pieces; and
-Parcel Services volume increased 7 percent to 473,000 packages

USPS said that revenue for its Shipping and Packages group continues to show good volume gains as a result of its efforts to compete in ground shipping services and last-mile e-commerce fulfillment markets, including Sunday delivery growth. Another factor it cited was increase e-commerce activity, that resulted in a volume surge in the form of record package activity during the 2014 holiday season.

The fiscal first quarter marked the first quarter in which the USPS implemented a rate hike for its Market-Dominant and Competitive Products, which took effect in January and was comprised of

The USPS is doing an outstanding job managing its book of business considering all the constraints imposed upon it and the mandates from Congress,” said Jerry Hempstead, principal of Orlando, Fla.-based Hempstead Consulting. “The Postal Service is profitable if one removes the mandate of the prefunding of retiree healthcare. This is an ongoing economic budget item on the P&L that no other corporation has to carry or pay for in this way. The new Postmaster General is a very seasoned veteran of the Postal Service and is navigating as best she can through the political headwaters of the Hill to try to get the needed legislative changes. They are rapidly moving to optimize their distribution network this year, which will help keep costs down. But with next year being an election year, it will not be as friendly to right sizing.

He added that the USPS has capitalized on its strength of going to every home six days a week as the most efficient vehicle for B2C transactions and as e-commerce becomes even more prevalent, it will continue to grow providing its pricing is competitive.

What’s more, with the price increases that took effect in January and dimensional rule changes that UPS and FedEx imposed at the start of the year, Hempstead noted that the USPS stands to have an amazing couple of quarters if they play their cards right and offer consistent delivery performance.