Canada Post segment reports $31-million profit before tax in second quarter, driven by strong growth in parcels
The Canada Post segment is reporting a $31-million profit before tax for the second quarter, which ended July 1. We delivered one million or more parcels on a single day 25 times in the first half of the year, putting us on pace to beat last year’s record of 34 days on which we delivered one million or more parcels.
While the growth in parcels is encouraging, structural challenges such as Lettermail decline and pension funding obligations remain significant long-term threats to our financial self-sustainability.
Key results for the Canada Post segment in Q2 compared to Q2 2016
Parcels revenue increased by $83 million or 20.5 per cent.
Volumes increased by 10 million pieces or 23.0 per cent.
Transaction Mail revenue decreased by $63 million or 8.0 per cent.
Volumes decreased by 95 million pieces or 10.9 per cent. The erosion was similar to previous periods, once you exclude the large census mailings in Q2 2016 from the comparison.
Lettermail decline, like the pension funding obligation, is a structural challenge that remains a significant long-term threat to our financial self-sustainability.
Revenue decreased by $11 million or 3.8 per cent, largely reflecting declines in Personalized Mail and Publications Mail volumes and revenue.
Overall volumes increased by 23 million pieces or 1.8 per cent, because Neighbourhood Mail volumes increased by 54 million pieces or 5.7 per cent. Neighbourhood Mail revenue increased by $5 million or 5.2 per cent.
Continuing strong growth in parcels maintained the Canada Post segment’s position as the country’s No. 1 parcel company in the first quarter.
The growth in Parcels volumes – which were 12.5 per cent higher in the first quarter of 2017 than in the first quarter a year earlier – continues the positive momentum Canada Post achieved by competing to win business and deliver record-breaking parcel volumes in 2016, particularly during the peak holiday season.
The Canada Post segment’s $44-million profit before tax for the first quarter, ended April 1, 2017, is consistent with the $44-million profit before tax in the first quarter of 2016.
Key results for the Canada Post segment in Q1 compared to Q1 2016
- Parcels revenue increased by $45 million or 10.8 per cent.
- Volumes increased by more than six million pieces or 12.5 per cent.
- Revenue decreased by $32 million or 3.8 per cent.
- Volumes decreased by 56 million pieces or 5.9 per cent.
- The decline in mail is one of the significant challenges facing the Corporation, together with its pension obligations, labour costs and the need to invest in its network and customer service.
- Revenue decreased by $10 million or 3.4 per cent.
- Volumes fell by three million pieces or 0.3 per cent.
- However, the largest product category by volume, Neighbourhood MailTM, saw revenue grow by $1 million or 0.4 per cent and volumes grow by 12 million pieces or 1.5 per cent.
The Canada Post segment today reported a $55-million profit before tax for 2016. This was the segment’s third profitable year in a row. We remain Canada’s No. 1 parcel company – a proud achievement made possible by the dedication, customer focus and hard work of thousands of employees.
Our 2016 results are a positive sign, but we still face significant challenges: declining mail volumes; sizeable pension obligations; comparatively high labour costs; and the need to invest in our network to keep up with growing parcel volumes. We believe these challenges can be solved.
We have grown our annual Parcels revenue by $521 million since 2011, when we decided to focus on helping Canadian businesses grow through e-commerce. Our growth strategy is working – for them, and for us. It’s why 2016 was a game-changing year. For example, we delivered one million or more parcels in a day 34 times. As well, during the holiday season, we shattered every parcel delivery record.
Key results for the Canada Post segment compared to 2015
- Revenue increased by $92 million or 5.6 per cent to $1.7 billion.
- Volumes rose by 14 million pieces or 7.7 per cent to 195 million.
- Parcels now generate 28 per cent of our revenue.
- Volumes continued their decade-long decline, falling by 286 million pieces or 7.8 per cent. That decline represents a revenue shortfall of $256 million based on the average revenue per piece in 2016.
- Transaction Mail volumes fell 44.1 per cent per address in the period 2007-2016, as volumes fall and the number of addresses increase.
- In 2016, Transaction Mail generated less than half of the segment’s revenue.
- Revenue fell by $67 million or 5.6 per cent to $1.14 billion.
- Volumes decreased by 261 million pieces or 5.3 per cent.
Group of Companies
- The Canada Post Group of Companies reported a profit before tax of $114 million, which was $22 million less than the profit before tax in 2015.
- Purolator’s profit before tax of $67 million was $11 million higher than its 2015 profit before tax.
With the risk of a work disruption in the third quarter, Canada Post’s commercial customers made other arrangements to deliver their parcels and mail, which reduced volumes sharply. While we reached tentative agreements with the Canadian Union of Postal Workers on August 30, volumes took longer to recover.
We estimate the net financial impact of the labour uncertainty at $100 million for the third quarter. That figure reflects the significant reduction in revenue but also slightly lower costs, such as less use of overtime and temporary employees. Employee benefit expenses were also lower in the third quarter due to a $44-million non-cash one-time gain. It resulted from the new collective agreement with the Canadian Postmasters and Assistants Association (CPAA) in August.
The Canada Post segment’s $60 million loss before tax in the third quarter compares to a loss before tax of $13 million in the third quarter of 2015.
Key results for the Canada Post segment in Q3 compared to Q3 2015
- Parcels revenue decreased by $30 million or 7.9 per cent.
- Volumes declined by 2 million pieces or 5.2 per cent.
- Over the first three quarters of 2016, Parcels revenue is up 4.5 per cent and volumes are up 5.9 per cent compared to the first three quarters of 2015.
- Transaction Mail volumes continued to erode significantly, for the 20th straight quarter.
- Volumes fell 120 million pieces or 13.8 per cent. Revenue fell by $79 million or 10.8 per cent.
- The revenue and volume declines are a result of the labour uncertainty. As well, Q3 2016 is compared to Q3 last year, when the federal election increased our volumes.
- Direct Marketing revenue decreased by $45 million or 15.2 per cent.
- Volumes fell by 210 million pieces or 17.5 per cent.
- Again, results were affected by the labour uncertainty and by comparison to Q3 2015, which had benefited from election mailings.
With the benefit of savings from its business transformation efforts in 2015 and continued strong Parcels growth, the Canada Post segment reported a small profit before tax of $1 million in the second quarter.
Census mailings contributed to the essentially break-even result, but Transaction Mail volumes dropped by 3 per cent compared to the same period a year ago and would have fallen by approximately 6 per cent without the census mailings.
During this period, Canada Post’s pension solvency deficit rose significantly. It is estimated at $8.1 billion as of July 1, 2016, up from $6.1 billion at December 31, 2015, based on the market value of plan assets. The large size and volatility of this obligation compared to the Corporation’s revenue and profit presents a major challenge to the Corporation’s financial self-sustainability.
Parcels and Direct Marketing represent opportunity for Canada Post, the country’s No. 1 parcel delivery company. However, growth in these areas will not be enough to pay for the Corporation’s pension obligations, offset the ongoing decline in Lettermail and invest in the network and customer service.
Key results for the Canada Post segment compared to Q2 2015
- Revenue rose by $34 million or 9.2 per cent to $404 million
- Volumes increased by 4 million pieces or 8.5 per cent.
- Volumes fell by 28 million pieces or 3 per cent.
- Revenue increased by $5 million to $784 million.
- Since the peak year of 2006 through 2015, Lettermail volumes have fallen by 32 per cent or 1.6 billion pieces.
- Direct Marketing contributed $296 million in revenue, a decline of $4 million or 1.3 per cent.
- Volumes fell by 35 million pieces or 2.8 per cent.