U.S. Postal Service reports fiscal year 2018 results

GaryPageau
  • Overall volume decline of 3.2 billion pieces
  • Net loss of $3.9 billion
  • Urgent need to advance legislative and regulatory reforms, along with continued aggressive postal management actions to generate new revenue and control costs

Washington, D.C. – The U.S. Postal Service reported operating revenue of $70.6 billion for the fiscal year 2018 (October 1, 2017 – September 30, 2018), an increase of $1.0 billion compared to the prior year. The higher revenues were driven largely by continued growth in the Shipping and Packages business, where revenue increased $2.0 billion, or 10.1 percent, which more than offset revenue declines in First-Class and Marketing Mail as a result of declining volumes in that segment of its business.

In 2018, First-Class Mail volumes declined by approximately 2.1 billion pieces, or 3.6 percent, while package volumes grew by 394 million pieces, or 6.8 percent, continuing a multi-year trend of declining mail volumes and increasing package volumes. Although mail volume declines were partially offset by growth in package volume, overall volume for the year declined by 3.2 billion pieces.

”The secular mail volume trends continue largely due to electronic diversion and transaction alternatives. We compete for business in every product line, every day from the first mile to last mile,” said Postmaster General and CEO Megan J. Brennan. “We are aggressively managing our business and continuing to focus on serving our customers and communities. However, the flawed business model imposed by law continues to be the root cause of our financial instability. We are seeking reforms that would allow the organization to reduce costs, grow revenue, compete more effectively, and function with greater flexibility to adapt to the marketplace and to invest in our future.”

Brennan added that addressing these urgently needed reforms would then provide an opportunity to consider broader public policy issues and develop long-term solutions to continue to enable the Postal Service to best meet the needs of the American public.

During the fourth quarter of 2018, the Governors of the Postal Service made a decision to reduce the organization’s debt level to reduce interest rate costs and to better reflect actual borrowing needs. The Postal Service subsequently reduced its debt by $1.8 billion, finishing the year with $13.2 billion in debt outstanding. The organization plans to reduce its debt level by an additional $2.2 billion as existing debt matures in February and May 2019.

Operating expenses for the year were $74.4 billion, an increase of $2.2 billion, or 3.1 percent, compared to the prior year. This was driven by an increase in compensation and benefits of $896 million due to contractual wage increases and increased transportation expenses of $623 million primarily due to higher package volume, increases in fuel prices and higher highway contract rates.

Expenses for workers compensation and retiree health benefits increased by $801 million and $221 million, respectively, largely attributable to changes in actuarially determined expenses outside of management’s control. These increases were partially offset by a $260 million reduction in expenses for the amortization of unfunded retirement benefits.

The Postal Service reported a net loss for the year of $3.9 billion, an increase in net loss of $1.2 billion compared to 2017. The controllable loss for the year was $2.0 billion, an increase of $1.1 billion.

Similar to the last several years, the Postal Service was unable to make the $6.9 billion in payments that were due to the federal government at the end of fiscal year 2018 to pre-fund pension and health benefits for postal retirees, without putting its ability to fulfill its primary mission at undue risk.

“We made the difficult decision to prioritize the maintenance of adequate liquidity to ensure the continued achievement of the Postal Service’s primary mission of providing universal postal services to the American people,” said Chief Financial Officer and Executive Vice President Joseph Corbett. “Making the pre-funding payments in full or in part would have left the Postal Service with insufficient liquidity to ensure the continued achievement of our mission.”

Corbett added that the inability to make these payments does not affect the continued receipt or accrual of these benefits by retirees and employees.

FY 2018 Operating Revenue and Volume by Service Category Compared to Prior Year
The following presents revenue and volume by service category for the year ended September 30, 2018, and 2017:

Revenue

Volume
(revenue in $ millions; volume in millions of pieces)

2018

2017

2018

2017
Service Category
First-Class Mail $

24,976

 $

25,689

56,714

58,834
Marketing Mail

16,512

16,626

77,269

78,329
Shipping and Packages

21,507

19,529

6,152

5,758
International

2,630

2,614

941

1,001
Periodicals

1,277

1,375

4,993

5,301
Other

3,720

3,760

333

367
Total operating revenue and volume $

70,622

 $

69,593

146,402

149,590

Selected FY 2018 and 2017 Results of Operations and Controllable Loss
This news release references controllable loss, which is not calculated and presented in accordance with accounting principles generally accepted in the United States (GAAP). Controllable loss is defined as net loss adjusted for items outside of management’s control and non-recurring items. These adjustments include workers’ compensation expenses caused by actuarial revaluation and discount rate changes, and the amortization of PSRHBF, CSRS and FERS unfunded liabilities. The following table presents selected results of operations and reconciles GAAP net loss to controllable loss and illustrates the loss from ongoing business activities without the impact of non-controllable items for the twelve months ended September 30, 2018, and 2017:

(results in $ millions)

2018

2017
Operating revenue $

70,622

   $

69,593
Other revenue  

38

    

43
Total revenue $

70,660

   $

69,636
Total operating expenses $

74,445

   $

72,210
Interest and investment income (expense), net  

(128)

  

(168)
Total expenses $

74,573

   $

72,378
Net loss $

(3,913)

 $

(2,742)
PSRHBF unfunded liability amortization expense1

815

955
Change in workers’ compensation liability resulting from fluctuations in discount rates  

(1,066)

  

(1,362)
Other change in workers’ compensation liability2  

(323)

  

(850)
CSRS unfunded liability amortization expense3

1,440

1,741
FERS unfunded liability amortization expense4

958

917
Change in normal cost of retiree health benefits due to revised actuarial assumptions5

138

527
Controllable loss $

(1,951)

   $

(814)

1 Expense for the annual payment due by September 30, 2018, and 2017, on the unfunded liability as calculated by OPM.

2 Net amounts include changes in assumptions, valuation of new claims and revaluation of existing claims, less current year claim payments.

3 Expense for the annual payments due September 30, 2018, and 2017, calculated by OPM, to amortize the unfunded CSRS retirement obligation. Payments are to be made in equal installments through 2043.

4 Expense for the annual payment due September 30, 2018, and 2017, calculated by OPM, to amortize the unfunded FERS retirement obligation. Payments are to be made in equal installments through 2047.

5 Represents the annual portion of the normal cost payment due September 30, 2018, and 2017, attributable to revised actuarial assumptions and discount rate changes. The total normal cost payment amount, calculated by OPM, is $3.7 billion and $3.3 billion, respectively.

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