Post Office Woes Will Help UPS
First, the good news (for investors): The Department of Labor announced on Thursday a four-month low in unemployment benefits claims. That bit o' news put a trampoline under the plummeting stock market, bouncing prices back up -- at least for one day.
Goodbye ... Newman
Now the bad news (for postal workers): The U.S. Postal Service wants to get rid of 120,000 of its employees. It has proposed cutting that many career positions by 2015. In addition, the USPS wants to lose the federal health and retirement plans for its workers, using less costly private plans instead. These moves would require breaking existing postal union labor contracts.
It also wants to close 3,700 post offices and go to five-days-a-week mail delivery to stem its losses, which have mounted to $20 billion over the past four years. The USPS has already cut 212,000 jobs in the past decade.
A Postal Service paper (PDF link) that The Washington Post obtained, states that "The Postal Service is facing dire economic challenges that threaten its very existence ... If the Postal Service was a private sector business, it would have filed for bankruptcy ..."
I wrote earlier this summer about UPS as a solid dividend delivery system. With UPS even cheaper now, that yield is more than 3.2%, about what a 20-year U.S. Treasury bond would produce. On top of that, UPS' second-quarter profit rose almost 26% over the same quarter a year ago. FedEx's profit was also up 33.2% over the same period.
Return on invested capital, or ROIC, for UPS was quite good, 13% over the last four quarters. This compares with an ROIC of 6.8% for FedEx. Fellow Fool Jim Royal took a good look at ROIC for these two companies last year and gave a good explanation of that metric's importance. Check it out here.
Are U, S, P, S dead letters?
Any of the changes the Postal Service wants to undertake can only happen with Congress' approval. But it would certainly become another hot-button issue, with anti-union and pro-union factions facing off squarely in a national forum.
It certainly is hard to image having no more post offices, but how long can the U.S. Postal Service go on hemorrhaging money? UPS and FedEx have shown that postal delivery can make a profit. If the USPS can't do the same, it will be writing its own obituary.
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At the time this article was published Fool contributorDan Radovskyhas no financial interest in the companies mentioned. The Motley Fool owns shares of United Parcel Service and FedEx.Motley Fool newsletter serviceshave recommended buying shares of FedEx. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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