USPS reports reduced losses in Q2 as revenues rise

USPS has announced its financial results for the second quarter of fiscal 2015. It reported operating revenue of $16.95bn, an increase of 1.3% over the same period of 2014. The company also recorded a net loss of $1.47bn, a slight improvement from a loss of $1.87bn in Q2 2014. Accordingly USPS’s margin stood at -8.66%.

The net loss resulted primarily from USPS’s retiree health benefit prefunding expenses. When adjusted for this expense the net loss was $44m for the quarter. In fact, in spite of rising volumes, operating expenses declined by $160m year-on-year, driven in part by favourable trends in workers’ compensation expense. Excluding the decline in workers’ compensation expense for the quarter, operating expenses increased by $156m, a reflection of higher compensation costs from growth in the labour-intensive shipping and package business, as well as higher retirement contribution rates mandated by the Office of Personnel Management.

The increase in operating revenue was driven by a 14.4% growth in shipping and package volume. Controllable income in the second quarter was $313m, an increase of $52m over the same period last year. This increase is primarily attributable to efforts associated with continued cost-cutting initiatives and enhanced revenue from strong shipping and package volume. Controllable income is defined as net income excluding retiree health benefits prefunding expense and expenses for interest rate and other non-cash workers’ compensation expense, which are factors outside of management’s control.

“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. “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.”

While shipping and package volume and revenue have demonstrated continued growth, volume and revenue from other products have declined. First-Class Mail and Standard Mail volumes declined 2.1% and 1.1%, respectively year-on-year.

“Shipping and Package Services are a key business driver, however, operating margins in this business are lower than in mailing services,” said Chief Financial Officer and Executive Vice President Joseph Corbett. “And, while we’re pleased to see a small increase in controllable income, to improve our margins, we’ll need to make investments in our network infrastructure and delivery vehicles.”