U.S. Postal Service continues streak of losses

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* Postal Service reports $297 mln loss in fiscal Q1

* Warns may not meet large payment obligations

* Faces pressure from recession, email

WASHINGTON, Feb 9 (Reuters) - The U.S. Postal Service posted a loss of $297 million for the first quarter of its fiscal year, blaming the recession and the use of electronic mail.

The loss marked a slight improvement over the prior-year period due to cost cutting, but the Postal Service warned the continued negative trend "raises significant uncertainty" about its ability to generate enough cash to meet large payment obligations later this year.

"Unfortunately, economic drivers that significantly affect mail volumes, such as continuing high unemployment levels and lower investments, appear to be lagging general economic recovery," said Joseph Corbett, chief financial officer and executive vice president, in a statement.

The Postal Service, which delivers nearly half of the world's mail, has posted net losses since 2007.

The first quarter of its fiscal year, which ends Dec. 31, is typically the strongest quarter for the Postal Service because of seasonal business and holiday mailings.

The Postal Service said the first-quarter loss was not unexpected, due to unprecedented declines in mail volume that began in 2008 and are related to the recession.

It is also facing head winds from the migration to electronic mail and competition from FedEx (FDX.N) and United Parcel Service (UPS.N).

"This trend is expected to continue," the Postal Service said about the losses.

Further, the Postal Service warned it may not be able to meet obligations to make substantial cash payments in September and October 2010.

The Post Service is due to make payments of about $6.6 billion to prefund retiree health benefits and for its workers' compensation liability.

Last year Congress restructured similar payments, but there is not assurance that similar adjustments will be made this year, the Postal Service said. (Reporting by Karey Wutkowski; Editing by Steve Orlofsky)

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A drop in revenue was largely offset by an even larger reduction in expenses for the U.S. Postal Service, leading to a modestly lower quarterly loss.

USPS had a fiscal first quarter loss of $297 million, compared to a net loss of $384 million for the same quarter a year earlier. Quarterly revenue declined by 3.9 percent. Expenses were down 4.4 percent.

The postal service shaved $6 billion from fiscal 2009 expenses, and cost reductions continue into the new year. In its fiscal first quarter, ending Dec. 31, the postal service cut work hours by more than 28 million on top of a reduction of 115 million work hours in fiscal 2009.

Even as signs of a rebounding U.S. economy mount, the postal service warns it may not benefit fully from any such recovery.

“Unfortunately, economic drivers that significantly affect mail volumes, such as continuing high unemployment levels and lower investments, appear to be lagging general economic recovery,” said USPS chief financial officer Joseph Corbett in a statement. “This situation, coupled with the growth of electronic alternatives to mail, creates a very challenging environment.”

Mail volume fell 8.9 percent in the fiscal first quarter, and Corbett believes total 2010 volume will fall to 167 billion pieces, down 10 billion from last year’s total.

The U.S. Postal Service has lost money for three straight years and is expected to post a fourth consecutive loss in 2010.