USPS posts $12 million operating profit for second quarter

  • Operating revenue impacted by the expiration of the exigent surcharge
  • Net loss of $562 million
  • Urgent need to advance postal reform legislation

WASHINGTON — Although the U.S. Postal Service posted modest controllable income for the second quarter of fiscal year 2017 (January 1, 2017 – March 31, 2017) of $12 million, it fell well short of the $576 million that it had for the same quarter last year. This reduction was driven by the April 2016 expiration of the exigent surcharge, which would have generated approximately $500 million in additional revenue during the quarter had it remained in place, and to a lesser extent, a $69 million increase in controllable operating expenses.

Operating revenue was $17.3 billion, a decrease of $474 million from the same period last year. Revenue from First-Class Mail and Marketing Mail decreased $606 million and $331 million respectively over the prior year quarter, due largely to the exigent surcharge expiration and lower volumes. These declines in operating revenue were somewhat offset by continued growth in the Shipping and Packages business, with a second quarter revenue increase of $486 million, or 11.5 percent, over the same period in the prior year.

The net loss for the quarter declined to $562 million from a $2 billion net loss a year ago, as the Postal Service benefited from declines in operating expenses outside of management’s control. Expenses for mandatory retiree benefit programs fell by a net $1.2 billion due to changes in funding requirements that took effect in 2017 according to law, while workers’ compensation expenses fell by $1.1 billion due largely to fluctuations in interest rates. (See tables below for detailed financial results).

Even with continued achievements in improving operational efficiency and revenue, the Postal Service cannot overcome systemic financial imbalances caused by legal and other constraints. Passage of legislation that would allow the Postal Service to operate within a more sustainable business model is urgently needed. In March, the U.S. House Oversight and Government Reform Committee advanced H.R. 756, the Postal Service Reform Act of 2017 for consideration by the full House of Representatives.

“America deserves a financially stable Postal Service that can continue to play a vital role in our economy and society. The path forward depends on continued innovation and aggressive management actions, the passage of H.R. 756 into law, combined with a favorable outcome of the PRC’s 10-year pricing system review,” said Postmaster General and CEO Megan J. Brennan. “With these actions, the Postal Service will have the financial stability to invest in our future and continue to be an engine of growth, to be a strong business partner, and to meet the expectations of the American public.”

The multi-year trends of declining volumes of letter mail and growth in packages continued this quarter. During the second quarter, letter mail volumes declined by approximately 1.4 billion pieces or approximately 3.8%, while package volumes grew by 137 million or approximately 11%.

“We are addressing declines in letter mail volumes by aggressively managing our work hours and compensation expense, while balancing and fine-tuning the resources needed to accommodate growth in package volumes and to optimize customer service,” said Chief Financial Officer and Executive Vice President, Joseph Corbett. “Despite inflationary pressures in the marketplace, the Postal Service’s controllable operating expenses rose by less than 1% in the quarter.”

Meanwhile, in addition to seeking needed legislative and regulatory changes, the Postal Service continues to focus on improving efficiency and on innovation to meet the evolving needs of its customers and to grow its business. By bridging the gap between the physical and digital worlds, the Postal Service is creating innovative experiences for consumers and maintaining the relevancy of physical mail in today’s highly digital environment.

FY 2017 Second Quarter Revenue and Volume by Service Category Compared to Last Year

The following presents revenue and volume by category for the three months ended March 31, 2017, and 2016:

Selected FY 2017 Second Quarter Results of Operations

The following table reconciles these non-GAAP operating revenue calculations with GAAP net loss for the three months ended March 31, 2017, and 2016:

Controllable Income

This news release references controllable income, which is not calculated and presented in accordance with GAAP. Controllable income is a non-GAAP financial measure defined as net income (loss) adjusted for items outside of management’s control. These adjustments include workers’ compensation expenses caused by actuarial revaluation and discount rate changes, PSRHBF prefunding expenses and the amortization of PSRHBF, CSRS and FERS unfunded liabilities.

The following table reconciles the Postal Service’s GAAP net loss of $562 million for the quarter to controllable income and illustrates the income from ongoing business activities without the impact of non-controllable items for the three months ended March 31, 2017, and 2016:

Complete financial results are available in the Form 10-Q, available at http://about.usps.com/who-we-are/financials/financial-conditions-results-reports/fy2017-q2.pdf.

Financial Briefing
Postmaster General and CEO Megan J. Brennan and Chief Financial Officer and Executive Vice President Joseph Corbett will host a telephone/Web conference call to discuss the financial results in more detail. The call will begin at 10:00 am ET on May 10, 2017 and is open to news media and all other interested parties.

How to Participate:
US/Canada Attendee Dial-in: 855-293-5496               
Conference ID: 5197473

Important Notice: 
To ensure your computer is set up to join the event, click on the link : www.webex.com/lp/jointest/
Attendee Direct URL: https://usps.webex.com/usps/onstage/g.php?MTID=eec937c52117a7a9628a1c47d74902cbb
If you cannot join using the direct link above, please use the alternate logins below:
Alternate URL: https://usps.webex.com
Event Number: 991 463 781

The briefing will also be available on live audio webcast (listen only) at:
http://about.usps.com/news/electronic-press-kits/cfo/welcome.htm.

Rural postal service remains essential

WASHINGTON – A top watchdog study completed at the request of U.S. Senators Claire McCaskill of Missouri and Heidi Heitkamp of North Dakota, found that the Postal Service remains essential to rural communities, regardless of whether those communities have access to rural broadband services.

“This study shows what we already know to be true—that the Postal Service remains essential to Missouri’s rural communities, regardless of their access to other technologies,” said McCaskill, a former Missouri State Auditor and senior member of the Senate Homeland Security and Governmental Affairs Committee, which has jurisdiction over the Postal Service. “There’s simply no substitute for the vital service our post offices provide— even as we continue to make important advances in rural broadband—and we’ve got to preserve and improve that service for the folks who rely on it most.”

“For North Dakotans in rural communities—whether they have access to high-speed internet or not—reliable mail service is a key ingredient to a successful business and staying connected,” said Heitkamp. “But too often, that high-quality service is not delivered—and that’s exactly what Senator McCaskill and I are working to improve. Today, we received the results of a Government Accountability Office study we requested which affirmed what folks in rural states have long known—that communities and businesses in rural areas depend on mail service regardless of their internet connection. By providing more clarity, we can make sure dependable mail service is prioritized in the rural communities where it is needed the most.”

The Government Accountability Office report examined the relationship between broadband access and use of the Postal Service in rural and urban communities. The report found that rural households without broadband access continue to rely on the Postal Service for more transaction and correspondence mail—and value this service for a variety of reasons, including fewer retail alternatives and a high level of trust in USPS services. The study also found that when rural households get broadband access, they do not reduce their use of the Postal Service.

cCaskill and Heitkamp are leading sponsors of the Rural Postal Act, a bill that aims to improve postal service, delivery times, and standards in rural communities that have been disproportionately affected by cuts to the Postal Service. The bill—also backed by Senator Jon Tester of Montana—would restore overnight delivery, return a faster First-Class mail standard, make six-day delivery permanent, and enact strict criteria the Postal Service would have to meet before closing a post office to ensure that rural communities are still able to easily access the mail system.

Source: http://www.westplainsdailyquill.net/opinion/columnists/article_c870cf40-9255-11e6-bf8a-2fb3f060f10b.html

Postal Service releases financial report for May 2016: Shipping services continue to surge

The Postal Service posted its May 2016 financial report with the Postal Regulatory Commission today.

As usual, declines in First Class and Standard mail are more than offset by dramatic increases in the volume and revenue from package and shipping services.

And as usual, were it not for the obligated prepayments to the Retiree Healthcare Benefit Fund (RHBF), the Postal Service would be posting a profit — nearly $1.8 billion for the first eight months of the fiscal year.

Total operating revenues for May were up 0.3 percent over last May and up 3.3 percent compared to the same period last year, which covers the first eight months of the fiscal year.

Total volumes for May were down 1 percent from last May, and they’re down 0.4 percent compared to the same period last year.

Due to rising operating costs, the Postal Service posted a loss of $323 million for May in controllable operating income, which excludes the payments to the Retiree Healthcare Benefit Fund and a workers’ comp adjustment. With those two payments included, the Postal Service lost $628 million in May, as compared to $412 million last May.

For the year to date, the Postal Service has made a profit of $1.79 billion in controllable operating income, and a loss of $2.53 billion with the RHBF and workers comp payments included. That represents a slightly smaller net loss compared to last year’s $2.67 billion.

First class mail volumes in May were down 6 percent compared to last May, and revenues were down 8.1 percent. For year to date, things aren’t as bad. First class volumes are down 1.6 percent, and revenues are down 1.1 percent.

Standard mail volumes in May were up 2.7 percent compared to last May, and revenues were down 0.7 percent. For year to date, Standard mail volumes are down 0.2 percent, and revenues are up 0.4 percent.

Shipping & Package Services continue to make up for the losses in market dominant mail. For May, revenues were up 16.8 percent over last May, and for year to date, revenues are up 15.3 percent.

Compared to the same period last year, the number of career employees increased from 490,064 to 499,902 (a 2 percent increase), and noncareer employees increased from 130,634 to 136,275 (a 4.3 percent increase).  Workhours are up 2.9 percent for year to date as well.

The increase in the workforce and workhours no doubt reflect the extra work it takes to handle the increase in shipping and package services, and it explains much of the increase in labor costs, which, for year to date, are up about the same amount, 2.4 percent.

The May financial report is here.

The PRC’s Public Representative recommends changes for emergency suspensions

The Postal Regulatory Commission may take another look at the issues surrounding emergency suspensions of post offices.

The Commission’s Public Representative has filed extensive comments for the Commission’s 701 Report to Congress and the President.  This report provides an opportunity for the Commission and industry stakeholders to assess the effectiveness of the Postal Accountability and Enhancement Act and to make recommendations for improving postal law.

The Public Representative’s comments run to 73 pages and cover a wide range of topics, including the Postal Service’s financial situation, the rate system, market tests, and Negotiated Service Agreements.  The comments also contain a section about a subject that has been a recurring theme on Save the Post Office — emergency suspensions.

These suspensions have been the source of controversy and the object of criticism for many years.  Sometimes the reason cited  for the suspension by the Postal Service seems suspect.  Sometimes the suspensions go on for way too long without being resolved.  Plus, when individuals have filed an appeal over a suspension with the Commission, it has invariably been dismissed as outside the Commission’s jurisdiction because the statute governing post office discontuances — 39 USC 404(d) — does not mention suspensions.

The Commission has been aware of the problems with emergency suspensions for a long time.  In 2008, it instituted a public inquiry proceeding (Docket No. PI2010-1) to investigate them.

“That inquiry,” notes the Public Representative in his comments, “disclosed a relatively large number of emergency suspensions, some lasting decades, during which time no effort was made to make a formal closing determination as required by section 404(d).”

The Commission closed the public inquiry docket without taking action, but continued to monitor emergency suspensions.  Rather than diminishing, the number of suspensions continued to mount up.

Just a few weeks ago, U.S. Senator Claire McCaskill called out the Postal Service for its use of “emergency suspension” authority to close down Missouri post offices, potentially circumventing the Postal Service’s standard discontinuance process.  “I am concerned,” wrote McCaskill in a letter to Postmaster General Megan Brennan, that “communities are being adversely affected without the opportunity to meaningfully participate in the decision-making process.”

The Public Representative has made several very useful recommendations for the 701 Report, which would go at least some way toward addressing the festering problems associated with suspensions.  

Not genuine emergencies

As discussed in this previous post, according to data filed by the Postal Service for the 2015 annual compliance report, at the beginning of FY 2015 there were 518 offices under suspension.  By the end of the fiscal year, there were almost 600.  (A list of the suspensions is here.)

As these growing numbers indicate, many suspensions occurred several years ago, and it’s very unlikely that these post offices will ever reopen.  They are in a kind of limbo.  They’re closed, but they haven’t been “closed” under the terms of the discontinuance statute, so the Postal Service never went through a formal discontinuance procedure, and the non-closings aren’t subject to appeal to the PRC.

In addition to all the unresolved suspensions, there’s the problem of manufactured emergencies.  Sometimes circumstances are clearly beyond the control of the Postal Service, but sometimes — as in the case of many lease terminations and staffing problems — it seems that the Postal Service wanted to close the post office and the suspension was just an easy way to do that.

As the Public Representative comments, such situations “did not appear to be genuine ‘emergencies’ that warranted an emergency suspension.”

 

Lease issues

The 600 emergency suspensions in effect at the end of FY 2015 were caused primarily by four circumstances.  Over 200 suspensions involved safety and health issues or damage to the building, and about  100 were due an inability to find qualified personnel to staff the office.

The most common reason for a suspension was a lease termination.   It accounted for 266 of the 600 suspensions.  In FY 2014, some 44 post offices were closed due to lease issues, and 36 more were suspended in FY 2015 for the same cause.

Lease issues are not only the most common reason for a suspension.  They also cause the most controversy.

There are undoubtedly situations where the termination of a lease is beyond the control of the Postal Service.  Sometimes the owner simply has other plans for the property, or perhaps the owner and the Postal Service are too far apart in what they regard as fair terms for the new lease.

But in many cases, the owner of the building and the communities served by the post office end up feeling that the Postal Service wanted to close the post office and it helped create the lease issue.

In any case, lease problems are rarely “emergencies.”  Since the date when a lease will end is known years in advance and there is plenty of time to either negotiate a renewal or find a new location.

De facto closings

Emergency suspensions are supposed to be temporary.  The Postal Service’s is supposed to either solve the problem that led to the suspension or proceed with a formal discontinuance study to close the post office permanently.  But when a suspension goes on for years, it’s really a closure, just by another name.

In his comments for the 701 Report, the Public Representative points to one of the main complaints about the suspensions: “It appeared that the Postal Service had been using emergency suspensions as a means of imposing de facto closing of post offices.”

In so doing, the Postal Service avoids going through the rigorous discontinuance procedures and denies communities an opportunity to have meaningful input into the decision-making process, which is one of the main objectives of 404(d).

A related problem is that both the Postal Service and the Commission view emergency suspensions as outside the scope of 404(d).  When a community appeals a post office closure involving a suspension, the Postal Service files a motion to dismiss, arguing appeals on suspensions are outside the scope of the Commission’s jurisdiction.  The Commission invariably grants the motion, leaving the community with no recourse.

Recommendations

As the Public Representative explains,  404(d)  establishes standards and procedures for closing or consolidating post offices, but it says nothing about closing post offices for emergency suspensions.  The Postal Service’s own policies and regulations provide many details about the circumstances justifying a suspension and the procedures for implementing one, but there’s little anyone can do when the Postal Service does not follow its own policies.

It may thus be time for Congress to include emergency suspensions in the next version of postal reform legislation.  The Public Representative makes three recommendations for creating a new statute that would improve the way the Postal Service uses the emergency suspension provisions.

1. Establish deadlines for initiating discontinuance studies for leases that are terminated or not extended.

This recommendation pertains to cases where the Postal Service can anticipate a lease renewal problem. It would require the Postal Service to initiate a discontinuance study not later than the date upon which either party to the lease exercises its right to terminate (or fails to exercise a right to extend the lease). Usually that date is the end of the lease, so this means the Postal Service would have to initiate a discontinuance study as soon as the lease ends and the post office is suspended, if not before then.

2. Establish deadlines for initiating discontinuance studies for Post Offices whose operations are suspended.

Once a post office is suspended, the Postal Service is supposed to either solve the problem and reopen it (even in a new location), or proceed to close it permanently through a discontinuance study. But some post offices remain suspended for years that way. This requirement would put a deadline on how long a post office could be suspended before a discontinuance study is begun.

3. Establish deadlines for completing discontinuance studies.

For most of the 600 suspended post offices, the Postal Service has not even initiated a discontinuance study, even though the suspension may have taken place years ago, but sometimes the Postal Service initiates the study and doesn’t complete it.  This new requirement would put a time limit on how long a discontinuance study can take.

In those cases where the Postal Service does not fulfill these requirements and the suspension becomes a de facto discontinuance, concludes the Public Representative, the persons served by the affected post office should have a right of appeal to the Commission.

The complete comments of the Public Representative are here.  Previous posts about emergency suspensions (which appear in the slide show at the top) are archived here.

Two post offices slated for closure will remain open

This post originally appeared on Save The Post Office on June 6, 2016

Two post offices facing imminent closure — both of which have pending appeals with the Postal Regulatory Commission — will not be closing after all.  The post office in Winchester, Illinois, and the contract post office in Westbrookville, New York, were both due to close over contract issues, but the issues were resolved last week and both offices will remain open.

The post office in Winchester was set to close for an emergency suspension on May 21 after the Postal Service was unable to come to an agreement with the owner of the building about the terms of the lease renewal. The Postal Service told customers it would try to find a new location, but in the meantime customers would need to use the post office in Jacksonville, 19 miles away.

The City of Winchester filed an appeal with the PRC as well as petitioning the District Court. The City attorney argued that there was nothing “sudden, nor unexpected, nor an emergency” about the lease situation, and the landlord remained open to continuing negotiations and keeping the post office open in the interim.

Last week the Postal Service informed the City’s attorney that it had signed a new lease with the landlord and the office would not be closing. As a result, the City filed a motion to dismiss its appeal with the PRC, and it is also withdrawing from the court case.  (Update: The PRC granted the motionto dismiss.)

It’s not clear if the pending litigation had anything to do with the Postal Service’s decision to resolve the lease issue. It may simply be that the Postal Service and the landlord were finally able to come to terms. Whatever the explanation, residents of Winchester will be happy that their post office is staying put. (More on Winchester in this previous post.)

In Westbrookville, the post office was set to close on March 31, when the woman who ran the contract unit retired.  An appeal was filed with the PRC, but it was doubtful that the Commission would hear it. The Postal Service and the PRC’s Public Representative both argued that the Commission did not have jurisdiction to hear appeals on contract postal units when they are not the “sole source” of postal services in the community, and it seemed likely that the Commission would dismiss the appeal on those grounds.

Then on June 1, the Postal Service informed the Commission that it had awarded a new long-term contract for continued operations in Westbrookville with a new supplier.

With the post office now remaining open, the appeal may be moot, and it’s likely that the Postal Service will file a new motion to dismiss on those grounds.

But the issues involved with the Commission’s jurisdiction over appeals on contract post offices remain very much alive, and they are currently the subject of a Public Inquiry docket, PI2016-2. Several parties, including yours truly, have filed comments on the inquiry, but the Commission has yet to render an opinion.

(Photo credits: Winchester post office, by J Gallagher, Post Mark Collectors Club (PMCC); Westbrookville, NY post office: Times Herald Record)

Winchendon post office halts longtime charity drive for veterans

WINCHENDON – Bette J. Mire is passionate when it comes to supporting veterans. So when she was told by a postal worker that the Veterans of Foreign Wars Auxiliary she volunteers for could not distribute poppies for veterans at the post office on Central Street as they have for more than 60 years, she took it to heart.

Ms. Mire’s father, Herman C. Vieweg, served in World War II. Her husband, Saul Mire, 79, is a Vietnam veteran who served in the U.S. Army for 34 years. The VFW started poppy distribution, she says, at the end of World War I as a symbol of freedom and to show support of veterans. Each year in Winchendon, the VFW and American Legion auxiliaries take turns distributing the poppies at the post office and a grocery store downtown, she said.

But this year, the Winchendon post office is enforcing regulations - in place for years - that restrict solicitations of any kind on government property, Ms. Mire said. She and others argue that they are not selling the poppies, just distributing them for voluntary donations.

“Some people don’t give anything,” Ms. Mire said. “Another person might walk by and give $20. Some people might just give a dollar.”

According to VFW.org, since 1922, the Buddy Poppy has been the VFW’s official memorial flower, representing the blood shed by American service members and serving as a reminder that “the VFW will not forget their sacrifices.” Disabled, hospitalized and aging veterans make the paper flowers and ship them out for distribution to posts and ladies’ auxiliaries, it says. The VFW pays the disabled veterans for the work, and all proceeds from distribution are used for veterans, their dependents and orphans of veterans.

The Winchendon postmaster did not return calls for comment.

Steve Doherty, head of corporate communications in the Northeast for the U.S. Postal Service, said the practice was never allowed.

Nonpostal or charity sales on the grounds of any post office is prohibited by federal law, he said, including organizations or individuals soliciting, polling, demonstrating or distributing literature on postal property, “regardless of how well-intentioned their organization’s mission may be.”

“We apologize for any confusion this policy may have caused in Winchendon,” Mr. Doherty said in an email.

When asked why the regulation was being enforced this year but not for the previous 60 years, he said, “I wasn’t aware that it was previously allowed, but I can’t speculate on why a former postmaster may have done something.”

Mr. Doherty added that the postal service has always been a strong supporter of veterans, who make up more than 18 percent of the agency’s workforce.

“In addition, over the years we’ve issued more than 100 stamps honoring every branch of the service, women in the military, Medal of Honor recipients and our veterans,” he said. “Our newest series continues a grateful nation’s way of honoring the bravery and achievements of members of the U.S. Armed Forces through its Service Cross Medals. Stamps featuring these decorations for valor from all military branches will be unveiled on Memorial Day at the World Stamp Show in New York.”

Ms. Mire said she is disappointed that the post office took the stance not to allow it this year. Subsequently, the Board of Selectmen did not approve a permit for the VFW auxiliary to distribute the poppies at the post office, she said. Instead, they are doing it at a bank downtown and the grocery store.

“It’s just another kick in the teeth for our veterans,” she said, crying. “We have enough trouble having the public support the veterans, now the government is going against them. That is how I feel. I don’t think people realize what they (the veterans) do for us. It’s disgraceful, I think.”

She said as an auxiliary member, she is not supposed to share any political views or take sides.

“I’m just here for the veterans,” she said. “All we want to do is make sure the veterans are supported - the old and the new. We have to realize they are still coming home.”

Coral M. Grout, a local historian for the American Legion and past president, and also national junior activities chairman, said distributing the poppies in Winchendon at the post office was always a community event. Her father, Charles E. Grout, who served during World War II in the U.S. Air Force and was also director of veteran services for years for Winchendon and eight other communities, used to stand on the steps of the post office and distribute the poppies, she said. Postal workers would bring chairs out for them to sit on at the top of the steps and provide them coffee, she said, and would invite volunteers inside the lobby if it was raining.

She said she was standing in line at the post office earlier this month and overheard the woman at the counter tell Ms. Mire they would have to stand on the sidewalk this year, not on the steps.

“I asked when it changed and she said, ‘That is the regulation,’ ” Ms. Grout said. “I told her that we’ve been doing poppies here for over 60 years. All of a sudden we are not welcome. We’re banished to the sidewalk. We don’t sell – people donate – and it all goes back to the community to our veterans.”

The donations help pay for things such as Christmas and Thanksgiving baskets for needy veterans, she said, and a barbecue at the America Legion or VFW for veterans.

“It is such a community-oriented thing,” she said.

USPS nets $188 million operating surplus in April (excluding PAEA)

The US Postal Service reported a $188 million operating surplus in April, bringing the year to date profit (before the non-cash bookkeeping entries required by the 2006 PAEA law) to $2.1 billion.

Operating revenue increased 2.3% compared with the same period last year (SPLY), while controllable expenses increased by just 0.7%.

Total mail volume was down by 0.7% for the month, led by first class mail, which was down 3.2%. The drop in mail volume and revenue was offset by increases in shipping and package services, so that total volume was just about the same as a year ago, while total revenue was up 2.2%.

usps-financial-info-table.jpg

Mail handlers and letter carriers agree to extend contract talks with USPS

WASHINGTON, DC May 21, 2016 (GLOBE NEWSWIRE) — The United States Postal Service and the National Association of Letter Carriers (NALC) have agreed to extend contract negotiations on a new collective bargaining agreement.

Although the contract with the NALC expired at midnight Friday, May 20, the Postal Service and the NALC have mutually decided to extend negotiations beyond the deadline.

The NALC represents approximately 210,000 city letter carriers nationwide.

The Postal Service and the National Postal Mail Handlers Union, AFL-CIO (NPMHU) also have agreed to extend contract negotiations on a new collective bargaining agreement.

Although the contract with the Mail Handlers union also expired at midnight Friday, May 20, the Postal Service and the NPMHU have mutually decided to extend negotiations beyond the deadline.

The NPMHU represents approximately 44,000 employees nationwide.

USPS Touts Ecommerce Initiatives in Plea for Postal Reform

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Postmaster General Megan Brennan called on Congress to enact legislation to help the Postal Service after releasing the agency's second-quarter financial report last week. She called the agency's challenges "serious but solvable."

Brennan testified before the House Oversight and Government Reform Committee on Wednesday, saying the USPS has worked with stakeholders on several provisions that can achieve broad support.

She also noted the increasing importance of ecommerce to the organization:

"Our package volume has grown by more than 1 billion packages in the last three years. In FY 2015, we delivered one-third of all domestic packages in the United States. To spur additional growth in our package business, we are partnering with a number of major U.S. retailers to develop customized delivery solutions to meet their particular business needs.

"Examples of the solutions we have developed include our Sunday, grocery, and same-day delivery initiatives, as well as our "ship-from-store" agreements that expedite the delivery of goods from businesses to consumers and improve convenience. These efforts have significantly enhanced the continued double-digit growth in package volume."

The USPS revealed Tuesday it had grown operating revenue 4.7% in the second quarter to $17.7 billion. The Postal Service breaks out its results, reporting "controllable" income of $576 million for Q2 with a net loss of $2 billion. The controllable figure does not reflect factors such as the legally-mandated expense to prefund retiree health benefits.

The Postal Service attributed the increase in operating revenue to an 11.4 % increase in Shipping and Package volume and pricing strategies.

The Wall Street Journal noted last week that the USPS has been competing with UPS and FedEx for market share in ecommerce; "However, the growth in USPS's shipping volume also has contributed to rising costs, including an increase in hours worked and transportation expenses. During the latest quarter, operating expenses increased 7.4%."

The National Association of Letter Carriers, which represents city delivery letter carriers, called the $576 million quarterly operating profit "positive news for an agency that enjoys widespread public support." It also called on Congress to adopt a "smart, targeted reform package that includes addressing pre-funding, allowing USPS the flexibility to use its invaluable networks for some new products and services, and adopting best private-sector practices in investing the USPS retiree health benefits fund."

You can see the USPS second-quarter financials on the USPS website, where Brennan's testimony before Congress is also available.


About the author: Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to ina@ecommercebytes.com.

USPS reports FY 2016 second quarter results: operating profit (before PAEA charges) reaches $1.8B year to date

The US Postal Service reported its second quarter financial results today. For the period from January 1 to March 31, the USPS had a net operating profit (aka “controllable income” of $576 million. That brings the year to date profit (excluding PAEA accounting adjustments) to just over $1.8 billion.

Here is the full summary issued by the USPS:

  • Operating revenue grew 4.7 percent to $17.7 billion
  • Controllable income totaled $576 million; net loss of $2.0 billion reported
  • Postal Service revenue benefited from exigent surcharge, which expired on April 10, 2016
  • Legislative reform and focus on innovation and efficiency remain necessary

WASHINGTON — The U.S. Postal Service reported operating revenue of $17.7 billion for the second quarter of fiscal year 2016 (January 1, 2016 – March 31, 2016), an increase of $788 million or 4.7 percent over the same period last year. The increase was primarily due to an 11.4 percent increase in Shipping and Package volume and pricing strategies.

“While we have been successful in achieving controllable income during the quarter, we are still reporting net losses and contending with long-term financial challenges,” said Postmaster General and Chief Executive Officer Megan J. Brennan. “We continue to focus on improving operating efficiencies, speeding the pace of innovation, and increasing revenues for the Postal Service.”

Controllable income for the quarter was $576 million compared to $313 million for the same period last year. Calculation of controllable income takes into account the impact of operational expenses including compensation, benefits and work hours; but does not reflect factors such as the legally-mandated expense to prefund retiree health benefits (see Non-GAAP Financial Measures table on following page for full description).

Net loss for the quarter was $2.0 billion compared to $1.5 billion for the same period last year. The change in net loss was most significantly impacted by a $547 million unfavorable change in the workers’ compensation expense as a result of interest rate changes – a factor outside of management’s control.

Operating expenses also increased in the second quarter compared to the same period last year, driven by increased work hours and transportation expenses due in large part to the increase in package volume. Labor costs increased by $362 million, and transportation expense increased by approximately $149 million.

“During the second quarter, we expanded work hours and our transportation network, taking more trips and increasing miles flown,” said Chief Financial Officer and Executive Vice President Joseph Corbett. “This largely resulted from strategic business decisions enacted to accommodate package growth and enhance service across the country.”

“I am grateful to our dedicated employees who helped us to achieve controllable income this quarter, but we cannot let this result mask the financial challenges we face,” said Brennan. “Our financial situation is serious, but solvable. We are confident that we can return to financial stability through the enactment of prudent legislative reform and a favorable resolution of the upcoming regulatory review of our rate-setting system.”

Selected Second Quarter 2016 Results of Operations Compared to Same Period Last Year
The following table presents certain selected results of operations for the three months ended March 31, 2016 and 2015:

* The three months ended March 31, 2016 had one additional business day compared to the same period in 2015.

Non-GAAP Financial Measures
Included in this news release is controllable income, which is not calculated and presented in accordance with accounting principles generally accepted in the United States (GAAP). Controllable income is a non-GAAP financial measure defined as net income subtracting operating expenses considered outside of management’s control. These expenses include the mandated prefunding of retirement health benefits, actuarial revaluation of retirement liabilities and non-cash workers’ compensation adjustments.

The following table reconciles GAAP net loss to controllable income and illustrates the income from ongoing business activities without the impact of non-controllable items for the three months ended March 31, 2016 and 2015:

 

1 This is a net amount that includes changes in assumptions as well as the valuation of new claims and revaluation of existing claims.

2 Determined by OPM in 2015 to amortize the $3.5 billion unfunded FERS retirement obligation based on actuarial valuations and assumptions. The payments are to be made in equal installments over the next 30 years. The 2015 expense of $241 million was recorded in full during the fourth quarter of 2015.

Complete financial results are available in the Form 10-Q, available athttp://about.usps.com/who-we-are/financials/welcome.htm.

Financial Briefing
Postmaster General and CEO Megan J. Brennan and Chief Financial Officer and Executive Vice President Joseph Corbett will host a telephone/Web conference call to discuss the financial results in more detail. The call will begin at 9:30 am on May 10, 2016 ET and is open to news media and all other interested parties.

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