Bloomberg News

U.S. Postal Service Loses $3.3 Billion, Warns of Cash Drain

February 15, 2012

(Updates with union comment starting in 12th paragraph.)

Feb. 9 (Bloomberg) -- The U.S. Postal Service said it lost $3.3 billion in the quarter ended Dec. 31 -- typically its strongest -- and that it expects to run out of cash in October unless Congress agrees to cuts in facilities and employees.

“If the Postal Service is unable to reduce its operating costs by $20 billion a year by 2015, we may not be able to return to profitability,” Postmaster General Patrick Donahoe said at a board meeting in Washington today. “We may become a long-term burden to the taxpayers if we are not able to make these reductions quickly.”

The ninth consecutive quarter of losses may increase pressure on Congress from the Postal Service and customers to approve legislation intended to return it to solvency.

“We have a Postal Service that essentially is living from paycheck to paycheck, which is a very risky proposition for the American economy and the 8 million private-sector workers whose jobs rely on the mail,” Art Sackler, coordinator of the Coalition for a 21st Century Postal Service, said in an e-mail. “Each day Congress fails to enact postal reform, this problem grows more difficult and perhaps more expensive to resolve.”

The coalition’s members include Bank of America Corp. and FedEx Corp.

Cash Projections

The Postal Service last year reached its $15 billion borrowing limit from the U.S. Treasury and has forecast a record $14.1 billion loss for this fiscal year. The service wants to eliminate as many as 220,000 jobs and close as much as 12 percent of its post offices, among other changes, to cut $20 billion annually in expenses by 2015.

Raising the debt limit would be a mistake because a business of the service’s size shouldn’t take on more debt, Chief Financial Officer Joseph Corbett told reporters on a conference call today. Increasing the limit would be the “absolutely wrong way to go,” he said.

As the service cut 8 million work hours in the quarter, compared with a year earlier, compensation spending fell 1 percent to $9.6 billion. Benefits costs remained $3.8 billion, the same as a year earlier. Those expenses won’t decline unless Congress allows the service to take over its own health-care plan, which is now managed by the U.S. government, and rescinds a requirement that it pay now for future retirees’ health benefits, Corbett said on the call.

The loss for the period that includes the Christmas season widened from $329 million in the year-earlier period. Revenue fell 1.1 percent to $17.7 billion as mail volume declined 6 percent, Corbett told the board.

Deterioration Expected

The service reported a $200 million operating profit in the quarter. Corbett said he doesn’t see that happening again unless it can make cuts it wants to make.

The $3.3 billion net loss was primarily the result of $3.1 billion accrued to pay for future retiree health benefits. The Postal Service is required to prefund those costs by a 2006 law with $12.1 billion for payments deferred from last year and due this year.

“These results reveal the need for Congress to remove the crushing burden of the prefunding payments, which the USPS is compelled to make, as its press release notes, ‘at rates not assessed any other entity in the United States,’” National Association of Letter Carriers President Fredric Rolando said in a statement. “Congress created this problem, and Congress can fix it. We urge lawmakers to address the prefunding issue.”

Daily Costs

The service’s daily operating costs are $220 million, or $1.3 billion for a six-day work week. Cash on hand will fall below one week’s expenses by August and run out, without help from Congress, after it makes a workers-compensation payment to the U.S. Labor Department in October, Corbett said.

The projections assume the service doesn’t pay any of its retiree health benefits pre-funding requirement.

An ideal level of cash on hand for the service would be $7 billion, Corbett said, citing an analysis it did of liquidity at companies including Wal-Mart Stores Inc., FedEx and United Parcel Service Inc. That’s about twice the amount it had at the end of December.

The cash position would temporarily improve after October and then run out again by October 2013, according to a presentation at the meeting.

The Postal Service predicted in November the amount of mail it will deliver in fiscal 2012 will fall about 6 percent, exceeding the drop of about 2 percent a year earlier, for a decline of more than 20 percent in the past five years. Revenue will probably decline to $64 billion in the year ending Sept. 30 from $65.7 billion in 2011, Corbett said at the time.

--Editors: Bernard Kohn, Steve Walsh

To contact the reporter on this story: Angela Greiling Keane in Washington at agreilingkea@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net


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