Postal Service Begins 2011 with Loss in First Quarter

Recession eases, but First-Class Mail volume continues to decline

The U.S. Postal Service (USPS) ended the first quarter of this fiscal year (Oct. 1 - Dec. 31, 2010) with a net loss of $329 million, compared to a net loss of $297 million for the same period in fiscal year 2010. Excluding the cost of prefunding future retiree healthcare benefits and noncash adjustments to the workers' compensation liability, the Postal Service would have had a net income of $226 million for the first quarter.

Despite significant cost reductions and efforts to grow revenue, current financial projections indicate that the Postal Service will have a cash shortfall and will have reached its statutory borrowing limit by the end of the fiscal year. Absent changes in applicable laws, the Postal Service will be forced to default on some of its financial obligations to the federal government on Sept. 30, 2011.

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"The Postal Service continues to seek changes in the law to enable a more flexible and sustainable business model," said Postmaster General and CEO Patrick R. Donahoe. "We are eager to work with Congress and the Administration to resolve these issues prior to the end of the fiscal year."

Economic indicators suggest that the worst of the precipitous volume decline during the recession is over. The lack of strong economic growth, however, continues to have an impact on the Postal Service's financial situation. Total mail volume increased a modest 707 million pieces or 1.5 percent for the first quarter of 2011, compared to the first quarter of 2010. Total mail volume remains well below the 2006 peak.

Mailing Services revenue of $15.3 billion decreased $520 million, or 3.3 percent, in the first quarter of 2011, compared to the same period a year ago. Mailing Services volume of 45.9 billion represents a 1.5 percent increase from the same period a year earlier. Revenues from Mailing Services declined despite an increase in overall volume. The increase in revenue from Standard Mail was not sufficient to offset the loss of revenue from the reduced volume of First Class Mail.

Mailing Services results include:

* First-Class Mail revenue of $8.8 billion, on volume of 20 billion pieces;
* Standard Mail revenue of $5 billion, on volume of 23.8 billion pieces;
* Periodicals revenue of $480 million, on volume of 1.8 billion pieces; and
* Package Services revenue of $431 million, on volume of 186 million pieces.

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Shipping Services revenue of $2.6 billion increased 1.7 percent or $42 million compared to the same period a year ago. Shipping Services volume of 422 million pieces represented a 2.4 percent increase compared to the same period a year earlier.

Details of the first quarter results include:

* Operating revenue of $17.9 billion, compared to $18.4 billion in the same period a year earlier, a decrease of 2.6 percent;
* Operating expenses of $18.2 billion, compared to $18.6 billion in the same period a year earlier, a decrease of 2.4 percent;
* Total mail volume of 46.4 billion pieces, compared to 45.7 billion pieces in the same period a year earlier, an increase of 1.5 percent.

The Postal Service reduced work hours in the first quarter by 6.4 million hours or 2.1 percent representing a reduction of approximately 3,600 full time equivalent employees. The number of career employees on Dec. 31, 2010 was 578,292, a reduction of 5,616 employees since the beginning of the first quarter. Since Dec. 31, 2007, the number of career employees has been reduced by 102,721 or 15.1 percent

Service performance remained excellent during the first quarter, with the national score for overnight Single-Piece First-Class Mail arriving on-time 96 percent of the time, a slight improvement over the same period a year earlier.

"I am very proud of our workforce. Postal employees continue to deliver exceptional service in these difficult times and in very challenging weather," said Postmaster General Patrick R. Donahoe, addressing the Postal Service's Board of Governors in open session today in Washington.

Several new marketing initiatives have been introduced that may help to improve revenue growth in 2011, including expansion of simplified addressing for business mailers, Priority Mail Regional Rate Boxes, Reply Rides Free, customized cards and the sale of gift cards. In addition, in January 2011, new Shipping Services prices increased an average of 3.6 percent. New Mailing Services prices that are limited to the Consumer Price Index cap of 1.7 percent, will take effect in April. While new marketing initiatives and price increases may help improve revenue growth, electronic diversion implies long term structural changes in demand.

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The Postal Service is aggressively pursuing a plan to reduce total expenses, which include organizational redesign initiatives. The Postal Service projects $2 billion in cost savings in fiscal year 2011, including a reduction of some 40 million work hours across the organization. Benefits of these initiatives, however, may be offset by rising fuel prices. Also, new contracts with the American Postal workers Union (APWU) and the National Rural Letter Carriers Association (NRLCA) are currently in negotiation.

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