USPS Profit, Revenue Fall Short

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The U.S. Postal Service this week said the increasing use of the Internet as a marketing medium, fewer blanket direct mailings and negative publicity about the use of sweepstakes promotions all contributed to a soft first fiscal quarter.


USPS, which angered mailers recently with a proposed rate hike, reported that the first quarter of fiscal 2000 fell short of the organization's budget plan in both profits and revenues.


Profits for the period ended Dec. 3 totaled $816 million, falling short of the organization's plan by $140 million, a spokesman said. Revenues were $15.23 billion, which was $306 million shy of the plan. Revenues increased 4.2 percent over the figure from the year-ago period.


The first quarter, which includes the fall mailing season for catalogers, is by far the USPS' busiest. The agency traditionally counts on profits from that quarter to compensate for losses during the rest of the year.


Although revenues from the USPS Priority Mail service exceeded expectations, revenues from Standard-A mail were $111 million below plan for the quarter, and revenues from First-Class mail were $118 million below plan.


"Standard A is slowing down and looking more and more like a mature product and less like a growing product," said USPS spokesman Greg Frey.


The volume of both First-Class and Standard-A mail increased marginally during the period, he said. First-Class mail was up by 1.5 percent in terms of the total number of pieces processed, while Standard-A mail was up by 1.7 percent. Standard-A mail previously had been growing at a much faster rate.


Although Frey argued that the meager growth rates and the budget shortfalls supported the USPS' pleas to switch to a market-driven pricing system - in which rates could be raised or lowered based on the demand for services and the availability of resources - the Direct Marketing Association said the results only indicate that the USPS needs to focus on cutting costs.


"By raising rates, they are just going to drive people to the Internet and their volume is just going to be flatter and flatter, and they are just going to start into this spiral," said Jerry Cerasale, senior vice president of government affairs at the DMA. He said the productivity increases that have occurred in the U.S. economy have not been reflected in the postal service.


"Getting costs out of their system is the first thing they should be doing," he said.


Frey agreed that the agency will have to do some cost-cutting this year to meet its goal of $100 million in profit for the year. Although the agency netted $816 million in the first quarter, it generally loses money during the balance of the year.


"We were aiming for $100 million [in profit] this year, so there's not a lot of room there for inflationary problems or changes in the costs of fuel or labor," he said. "We're going to have to do some significant cost-cutting to make the plan for the year."
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