Are UPS Results Bad for the U.S. Postal Service?

Services

Published: July 29, 2014 11:45 am

Last Updated: April 27, 2020 4:34 pm

Tuesday’s earnings report from United Parcel Service Inc. (NYSE: UPS) disappointed investors, not because the package delivery service missed estimates but because the company expects to invest more money to help it avoid the problems it had delivering packages during the past holiday season. Companies that invest in the future at the expense of paying off existing shareholders often get punished, and UPS was taken to the woodshed Tuesday.

UPS is getting a taste of what the U.S. Postal Service (USPS) gets from the U.S. Congress every time it reports a new quarterly loss (as it has in 19 of the past 21 quarters). The USPS actually generates more revenue than UPS — in the quarter ended in March USPS reported total revenues of $16.73 billion, up $377.4 billion compared with the prior year’s first quarter. UPS reported $13.43 billion in revenues in the same quarter, up $298 million compared with the prior year.

The big difference is the USPS received $8.1 billion in package services revenues, compared with $9.3 billion at UPS. The USPS gets more of its revenues from mail delivery: First Class mail — $7.43 billion — and Standard mail — $4.23 billion. And the USPS is losing ground in the package shipping business. In the March quarter, package revenues fell 23%, while UPS domestic package revenue rose by about 3.2%.

In its second quarter, UPS’s domestic package revenues rose 5.2% to $8.7 billion. It is probably safe to assume that USPS revenues for the quarter will be lower when it reports quarterly results next month. Combined with consistently declining revenue from First Class and Standard mail, there is every reason to believe that the USPS will post a loss in the 20th of 22 quarters.

ALSO READ: Can Amazon Save the U.S. Postal Service?

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