June 1, 2016

USPS beats its April profit plan by $343 million

USPS reported a $187 million April operating profit after planning for a $156 million loss. Wow! That’s quite an earnings beat! If USPS beat by that amount every month it would reap an additional unexpected annual profit of $4.1 billion. It shows you how hard it is to project “controllable” USPS financial results, even when you’re only 7 months into the fiscal year.

USPS is doing 47 percent better than its 2016 plan YTD

Year-to-date, USPS has now made $2.117 billion in controllable operating income, $677 million (or 47 percent!) better than the $1.44 billion YTD plan and $501 million better than the same 7 months last year.

The growth of the USPS is being driven by parcel shippers who were not subject to the exigent surcharge because their products are “competitive.” In April, parcel volumes were up 15.2 percent or 55.2 million packages over last April. Revenues for packages were up 19 percent or $241 million. Year-to-date 7-month package volume is up 14.2 percent or 384 million; revenues are up 15.1 percent or $1.439 billion.

So far his year, the USPS is doing 8.5 percentage points better than the optimistic package forecast it put forward in the FY 2016 Integrated Financial Plan: “Shipping and Packages volume is expected to grow 5.7 percent to 4.8 billion pieces in 2016, led by the strong year-over-year growth in e-commerce and growth initiatives.” Package revenue was projected by USPS to grow 11.9 percent.

The 2016 USPS plan called for a 2.1 percent decline in total mail volume this year, but so far after 7 months, the slowdown has been only 0.3 percent, which is 1.8 percentage points better than projected.  Perhaps most amazingly, the USPS official plan projected an increase in revenue of only $0.4 billion from $68.9 billion to $69.3 billion. That is a revenue growth rate of only 0.06 percent, way below its revenue growth so far of 3.7 percent.

USPS                         FY2016 Integrated Financial Plan    FY2016 Results thru April

Operating Income                    $1.44 billion YTD               $2.117 billion YTD   +47%

Package Volume Growth         +5.7% for year                    +14.2% YTD              +8.5 points

Package Revenue Growth       +11.9% for year                   +15.1% YTD              +3.2 points

Total Mail Volume Decline     (2.1%) for year                    (0.3%) YTD               +1.8 points

Total Revenue Growth            +0.06% for year                  +3.7% YTD               +3.64 points

In addition to huge FY 2016 under-forecasts, USPS projected $0.5 billion operating profit in FY 2015, and actually made $1.188 billion. The large variance between USPS annual plans and actual results demonstrates the risk of giving a forecast too much weight in designing postal reform.