UPS United Parcel Service

By Laura Stevens 

The U.S. Postal Service on Tuesday posted its first quarterly profit since 2011, earning $307 million after a holiday delivery season that beat expectations due in part to more flexibility on hiring seasonal workers from its unions.

Excluding special items, such as prepaying retiree health benefits and certain changes in workers' compensation expenses, controllable income increased 12% to $1.26 billion for the quarter ended Dec. 31.

The USPS this holiday season was looking to elbow its way further into an e-commerce market long dominated by United Parcel Service Inc. and FedEx Corp. And for the first time in recent years, the USPS delivered more packages than both of those rivals, as the agency exceeded its holiday predictions.

Letter carriers delivered about 660 million packages over the holidays, up from the agency's initial forecast of about 600 million. UPS delivered 612 million packages, under its forecast of 630 million deliveries.

"The Postal Service, I believe, is uniquely positioned to flex up during a period when you have such a surge in volume. We kept our network fluid, and we delivered value for our customers," said Postmaster General Megan Brennan on an earnings conference call with journalists.

Keeping packages flowing meant the Postal Service hired about 30,000 seasonal workers and increased the number of delivery shifts in some areas to three a day from one. It also ran the equivalent of as many as 25,000 routes on Sunday, up from 4,000 on a normal Sunday.

But packages are more labor intensive than letters -- often requiring a letter carrier to walk to the door -- and costs increased. Total work hours were up 3%, or 8 million, compared with the same quarter a year ago, due to 16% more packages. Compensation increased less, up 2% to $9.74 billion.

Ms. Brennan said the agency is working to control costs through implementing more technology, including routing software for deliveries. In addition, the unions have given the agency more power to hire seasonal and other temporary workers. About 20% of its workforce nationwide is currently considered flexible, she said.

"In negotiations with our respective unions, we've increased our flexibility, and they've worked very closely with us to enable us to have the ability to flex up and to look at utilizing these additional flexible resources at a lower wage rate," Ms. Brennan said.

A spokeswoman for the American Postal Workers Union said that the unions' agreement on flexible hiring is for three years and runs through May 2018.

Transportation costs rose by $82 million, to $1.88 billion in the quarter, also due to more packages, the agency said.

The way the USPS prices packages and allocates those costs has long been an issue for UPS and FedEx, both of which compete with the agency for packages, and also use their low-cost delivery option to transport packages the so-called last mile from a local post office to the door. The delivery giants have previously challenged the agency's calculations. Most recently, UPS has proposed a new method for determining costs for packages, which would likely result in higher prices.

"Although UPS supports a healthy and viable Postal Service, we are concerned that the USPS is forcing monopoly mailers, primarily users of letter mail, to bear the burden of costs to deliver parcels. This violates U.S. law, and needs to be addressed by the Postal Regulatory Commission and Congress," a UPS spokeswoman added in a statement.

Over all, the Postal Service reported a profit of $307 million, compared with a year earlier loss of $754 million. Excluding the favorable impact of interest rate changes and the effect of a certain surcharge, the Postal Service's loss would have been $700 million. Operating revenue rose 3.3% to $19.35 billion.

The Postal Service doesn't receive taxpayer dollars to cover operating costs, although it is compensated for certain services and has used up a $15 billion credit line with the U.S. Department of the Treasury.

The Postal Service will continue to work to get postal reform legislation passed to relieve some of the financial pressure on the organization, especially the prefunding of retiree benefits, Ms. Brennan added.

"We need legislation now," Ms. Brennan said. "Absent that, our financial condition worsens."

Tess Stynes contributed to this article.

Write to Laura Stevens at laura.stevens@wsj.com

(END) Dow Jones Newswires

February 09, 2016 17:13 ET (22:13 GMT)

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