USPS fiscal second quarter earnings see revenue and volume declines

Fiscal year 2023 second quarter earnings results, for the United States Postal Service (USPS), which were issued yesterday, saw a 2.4%—or $484 million decrease—in operating revenue, to $19.5 billion, on an annual basis, with volumes down 9.4%. USPS also reported a quarterly net loss of $2.5 billion compared to a net loss of $639 million for the same quarter a year ago.

“The Postal Service is making rapid progress with our 10-year transformation and modernization plan, which has already produced strong service performance and efficiency improvements and is creating a much more capable and effective operational model for the nation,” said Postmaster General and CEO Louis DeJoy in a statement. “We continue to focus on achieving break-even financial results for the 10-year period, although inflationary and economic conditions, as well as administrative hurdles, have proven difficult. The increase in the pace of change now required to achieve our financial goals will continue to be balanced with providing service performance throughout the nation.”

USPS officials attributed the operating revenue loss to declining volumes seen mainly in the organization’s Marketing Mail and Shipping and Packages categories. And they also pointed to what it described as significant volatility in the U.S. and global economies related to the pandemic and geopolitical conditions, with inflationary impacts remaining high and unpredictable, even though inflation has moderated in recent months.

“Other major factors that impacted our operating results include overall customer demand, the mix of postal services and the pricing and contribution associated with those services, the volume of mail and packages processed through our network, our ability to manage our cost structure in line with secularly declining levels of mail volume, increased competition in the more labor-intensive Shipping and Packages business, and an increasing number of delivery points,” said USPS.

In its Shipping and Packages group, Priority Mail Services revenue was down $162 million—or 2.1%—to $7.622 billion, with volume down 5.0%—or 89 million pieces—to 1.684 billion. Priority Mail Services revenue was down 6.8%, to $3.010 billion, with volume down 11%, to 274 billion pieces, and Parcel Services revenue increased 11%, to $2.53 billion, with volume up 5.1%, to 5.422 billion. First-Class Package Services revenue—at $1.850 billion—was down 12%, with volume down 16.5%, to 520 million pieces, and Package Services revenue—at $232 million—up 4.7%, and volume down 9.6%, to 113 million pieces.

USPS officials said that the Shipping and Packages business is subject to intense competition, adding that its major customers continue to increase their delivery densities across a greater geography, with in-sourcing from its major customers, major e-commerce retailers, and other competitors continuing to grow.

“Our ability to remain competitive and grow our shipping services market share significantly impacts both revenue and volume,” said USPS in its Form 10-Q statement. “The results for our Shipping and Packages category…generally reflect our successful efforts to compete in shipping services, including ‘last-mile’ e-commerce fulfillment markets and Sunday delivery, as well as end-to-end markets, driven by consumers’ continued use of online shopping. We continue to focus on responding to customers’ needs by implementing marketing campaigns and maintaining strategic business partnerships that help us capitalize on the e-commerce business.”

First-Class Mail and Marketing Mail revenue came in at $6.295 billion (essentially flat annually) and $3.578 billion (down 4.3% annually), respectively, with volumes down 6.2%, for First-Class Mail and 11.0%, for Marketing Mail.

USPS Chief Financial Officer Joseph Corbett said that the organization continues to be challenged by declining mail volume and rising operating costs due to inflation.

“We are managing the costs within our control, such as reducing work hours by 7 million hours compared to the same quarter last year,” he said. “However, price increases are necessary to try to offset declining mail volumes and inflation. Despite these increases, our prices remain among the most affordable in the world.”

Despite another quarterly loss, USPS continues to make inroads on the heels of its “Delivering for America 10-Year Strategic Plan” that was rolled out in March 2021 and focused on achieving financial sustainability and service excellence, in order to meet customer and business needs. The plan takes an ambitious approach focused on helping the USPS get on solid financial footing, as the organization has been in the red over the last 15-plus years.

But it cautioned that it continues to face systemic imbalances that make its current operating model unsustainable, explaining that shortfalls or delays in implementation of the plan will place additional pressure on its liquidity and financial results.

“As a result of these concerns, we may not have sufficient liquidity to meet all of our existing legal obligations when due while also repaying our maturing debt and making the critical infrastructure investments that have been deferred in recent years, and that are necessary to fulfill our primary mission.”

Despite its financial challenges, USPS has definitely made strides as a carrier, said Rick Watson, Founder and CEO of New York-based RMW Commerce Consulting, in a previous interview.

“The 10-year plan contains everything you think it should: modernizing the company, rationalizing the workforce, and matching the supply and infrastructure to the current needs of consumers and demand,” he said. “Of course, having a plan is one thing and executing it is quite another. The entity is saddled with almost impossible demands on its service from consumers, as well as the workforce itself, so the organization continues to have an uphill climb.”