Can These Stocks Deliver If the Post Office Can't?
Sep 14th 2011 4:54PM
Updated Sep 14th 2011 4:56PM
Facing a second straight year of losses totaling $8 billion or more, the U.S. Postal Service is facing a mounting debt crisis and has reached its borrowing limit. With $75.4 billion in operating expenses in its 2010 fiscal year against only $67 billion in revenue, the federal agency has long been operating in the red. We look at what that means for many of the companies relying on the USPS as an integral part of their business model.
USPS isn't the only game in town ... except when it is
The Post Office says that unless it can meet its $5.5 billion pension payment this month, it will be in default. Several alternatives are being floated, including employee layoffs, elimination of Saturday delivery service, post office location closures, and a restructuring of employee health benefits.
But what does this mean for competitors? Sure, FedEx (NYS: FDX) and UPS (NYS: UPS) deliver packages, but have you ever tried to mail a letter through either one? These two stand to gain valuable business should the USPS shut down or alter services. But don't look to them to be delivering birthday cards anytime soon.
Goodbye, postage meters
Pitney Bowes (NYS: PBI) , the "don't think of us as just mailing" company built around postal services, has made strides to position itself as a full-service communications company. So much so, in fact, that each of the company's Web pages provides the opportunity to tweet, link, or email the page. Why anyone would is anyone's guess.
The company has launched several new lines of business in the past few years, including what it calls "location intelligence, marketing services, and eco-wise mail." Nowadays, you won't find the word "mail" prominently displayed on the website of the company that built itself on its ubiquitous postal machines; however, direct mail and mailing services remain a large part of its business. Pitney Bowes recently signed several large third-party mailer agreements representing more than 1,500 companies that send out billions of pieces of mail annually.
Hello, anyone who will give me a movie online
Netflix (NAS: NFLX) , the red-enveloped movie beast, has built a trim and efficient model on the United States Postal Service. With a controversial rate increase going into effect during the September billing cycle, and a new model that splits streaming from DVD mailers, Netflix would be wise not to make any more rate changes in the immediate future.
Netflix built its business on DVDs by mail, but the company is making strides to dominate the streaming field -- one that already has some strong players, including Hulu and Amazon.com. Even DISH Network's (NAS: DISH) Blockbuster, which Netflix virtually put out of business, is readying a streaming service, and according to my Foolish colleague, Rick Munarriz, it may even be a serious threat to Netflix's streaming business. As a result, any change in service or pricing for the USPS will have an immediate effect on the company's bottom line, which Netflix will probably have to eat, at least in the short term. Coupled with its rocky streaming model, a threat to the traditionally mailed movies might be more than Netflix can handle.
A birthday poke just isn't the same
Birthday wishes sent on Facebook don't have quite the same effect as a good old-fashioned card. A condolence sent by text isn't very consoling at all. And even though I live predominantly in the digital domain, I still have a fondness for holiday greetings that arrive the old-fashioned way.
American Greetings (NYS: AM) has hung on through the digital revolution by integrating social platforms (including e-cards), conducting extensive market research, acquiring card brands Papyrus and Recycled Greetings, and even collaborating with pop star Taylor Swift. But greeting cards will most likely go the way of the cassette tape if the USPS closes, and American Greetings will feel the brunt.
Neither snow nor heat nor gloom of night ... nor collapse of the Postal Service
Will these companies, and others that rely on the Postal Service for delivery, cease to exist if the USPS does? Probably not. But signs that a company is struggling with its delivery options include higher prices on goods and services, as well as shipping; incentives to sign up for virtual correspondence; and delays in delivery.
The downturn at the Postal Service is just the beginning. Check out our special free report, "The Only Stock You Need to Profit from the NEW Technology Revolution," to make sure your portfolio is prepared for what's coming next.
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At the time this article was published Fool contributor Molly McCluskey loves getting birthday cards but does not own shares or hold leadership positions in any of the companies mentioned. The Motley Fool owns shares of United Parcel Service and FedEx. Motley Fool newsletter services have recommended buying shares of FedEx and Netflix as well as buying puts on Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.
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