5 Companies Affected by Changes at USPS
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In a move seen as necessary to save it from financial ruin, the United States Postal Service has announced plans for a five-day delivery work week. The move is one that will hopefully keep the USPS from further defaulting on loans to the US government. Postmaster General Patrick R. Donahue said, “The Postal Service has a responsibility to take the steps necessary to return to long-term financial stability and ensure the continued affordability of the U.S. Mail."
No Saturday delivery will be limited to first class and regular mail, as packages will still be delivered. Concerning the six-day work week for package delivery, Donahue said, “Our customers see strong value in the national delivery platform we provide and maintaining a six-day delivery schedule for packages is an important part of that platform.”
The new schedule, which begins in August, will save the company $2 billion annually. By saving 45 million work hours, the USPS will work on cutting down its fiscal problems. Last year, the Postal Service lost $15.9 billion, losing over $25 million a day. Since 2006, the company has cut 168,000 jobs, trimming its workforce by over 24%.
The Postal Service is not publicly traded, so you can’t profit from its misery or pending recovery. However, several companies could have positive and negative reactions based on today’s news. Here is a look at those most affected by the announcement.
FedEx (NYSE: FDX)
FedEx is the largest express shipping company in the world. In 2012, the company posted a revenue increase of 9%, and earnings per share increase of 40%. The company’s ground service saw growth of 12% and express saw growth of 6%. Both of these segments compete with the USPS. The non-delivery of mail on Saturdays does not include packages, so the USPS will still compete directly with FedEx. However, with fewer branches open on Saturday, FedEx should see increased demand at its shipping locations around the country. Customers will likely misinterpret the no mail delivery on Saturdays to include packages, which could be to FedEx’s benefit. Revenue is expected to rise 4% in 2013 and 6% in 2014.
UPS (NYSE: UPS)
UPS is the largest package delivery company in the world, both by volume and revenue. The company has seen a huge increase in its United States business segment. Package volume continues to increase, as the company is utilized for more online retailers. Similar to FedEx, UPS will gain customers from USPS for its continuing focus on customers six days a week. Revenue is expected to rise 5% in 2013 and 6% in 2014.
In December, UPS was the most visited postage site in the country, with over 21.2 million visitors. This was a huge lead over the USPS (16.1 million), FedEx (15.7 million), and Stamps.com (1.5 million). UPS is becoming the brand most trusted during the holiday season for customers and businesses. Expect UPS to pick up additional customers that don’t trust or understand the USPS and their schedule.
Netflix (NASDAQ: NFLX)
Netflix has shifted to a digital-based company. In the fourth quarter, the company counted 27.1 million customers that used its streaming services, an increase of 2 million. DVD by mail subscribers totaled 8.2 million, a decrease of 382,000. Some subscribers were counted in both of these figures, but the shift is eminent. The company forecast for the number of DVD subscribers to fall to 7.6 million in the next quarter, while streaming customers are expecting to increase to 28.5 million.
Investors seemed to like the news of USPS not delivering the red envelopes on Saturday. Shares of Netflix saw a nice bounce as a result of cheaper postage costs. Not having new movies two days in a row could also lead to more subscribers adding the streaming option for $7.99 a month, meaning subscription numbers could trend higher in August through the end of the year.
The company tried to spin-off its DVD segment. Anyone remember Qwikster? Customers were mad about changes at that time and could be ready to voice their opinion now. While Netflix shares rise due to lower postage costs for the company, could customers expect those savings to be passed on to the monthly subscription prices? An unlimited DVD plan will now allow you to watch DVDs anytime, but only receive new ones five days a week. It seems a little unfair to use the word “unlimited.”
Time Warner (NYSE: TWX)
Time Inc., an operating segment of Time Warner, is the largest magazine publisher in the United States. New delivery schedules will make it especially hard on magazine companies, as deadlines will get tighter to ensure that magazines are delivered on time to subscribers. This could lead to increased labor costs or less advertising revenue, as magazines scramble to fit four day work weeks. Time is the largest publisher with titles like Time, People, Sports Illustrated, Entertainment Weekly, and Fortune.
In 2012, the publishing segment made up $3.4 billion of the company’s $28.7 billion revenue total. Publishing revenue declined 7% during the year. Operating income in the segment totaled $463 million, a decline of 20%. Only 7% of operating income for Time Warner came from the publishing unit. However, declines in income and revenue in the segment don’t bode well going forward and the loss of a day could further hit the struggling print media industry.
Stamps.com (NASDAQ: STMP)
Stamps.com offers paid postage through its website, including for packages and regular mail. This is the company that could take a hit from the loss of a day, as it does not solely focus on the package side of mail delivery. Stamps also has a strong business relationship with the USPS, which could make it less attractive to priority focused shippers. The company is expected to post a revenue increase of 13% in 2013. Stamps had an impressive 2012 campaign with over 400,000 customers and a total of over $1 billion printed in postage. Expect the new delivery schedule to slow down Stamps.com's recent growth.
Something had to be done to help the USPS avoid defaulting further on loans. Apparently raising the cost of stamps to $0.46 wasn’t enough. While the shortened work week will save the company billions of dollars, it could take customers away with it. Expect UPS and FedEx to be marginal winners on the deal. Stamps.com is a loser on the news and Netflix is neutral with both positive and negative. Consider adding FedEx or UPS shares to your portfolio.
katje30 has no position in any stocks mentioned. The Motley Fool recommends FedEx, Netflix, and United Parcel Service. The Motley Fool owns shares of Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!