December 10, 2014
The Postal Service plan for the fiscal year that started October 1, 2014 calls for an accounting net loss of $6.1 billion compared to a loss of $5.5 billion last year, and a controllable operating profit of $0.5 billion compared to $1.4 billion in 2014. The plan projects a decline in mail volume of 2.2 billion pieces or 1.4% to 153.2 billion which continues the moderate leveling off we have seen recently. Standard Mail, the main product used by nonprofit mailers, is expected to increase by 1 billion pieces or 1.3% to 81.3 billion which would be 53% of total mail volume.
It is interesting to note within the plan how the USPS is handling its newfound prosperity. This can be seen in the capital plan which is an important variable in how the Postal Service uses cash. There are two main components to the capital plan—commitments that are made for large projects or purchases, and cash outlays that are the actual payments on capital projects and purchases to be paid within the year, some of which were committed in previous years. The FY 2015 capital plan greatly increases both commitments and cash outlays.
Capital commitments averaged $0.8 billion a year for 2009-2013 and were $0.9 billion in 2014. They jump to $2.2 billion in the FY 2015 plan, a 144% increase. And capital cash outlays averaged $1.2 billion a year for 2009-2013, and were $0.7 billion in each of 2013 and 2014. They will be up to $2.0 billion in FY 2015. In terms of actual cash spent on facilities, mail processing equipment, vehicles, and customer service and support equipment, the Postal Service will be able to almost triple the amount with a $1.3 billion increase in 2015.
Postal Service management and the Board of Governors are choosing to target only a small increase in year-end cash to $5.2 billion from $4.9 billion. If they did not decide to increase capital cash outlays by $1.3 billion, FY 2015 year-end cash would be more like $6.5 billion which is about 25 days of operating cash. Given the choice between much needed infrastructure investments and cash accumulation, it seems that the USPS has made the right decision.
Another interesting nugget in the Postal Service plan is the assumption that transportation costs will increase to $6.8 billion from $6.6 billion, based on “…costs associated with the network consolidations, additional package volume, and inflation.” It will take a lot to offset the huge deflation in the price of fuel that we are all aware of, as described in USA Today: “We’re in a tailspin,” says Tom Kloza, global head of energy analysis at the Oil Price Information Service.” The world is facing a possible glut of oil in 2015. Consumers typically paid $470 billion-$480 billion for motor fuel between 2011 and 2013. We’re on track for about $449 billion this year and likely to pay $75 billion to $100 billion less next year.” It seems as though there is some padding in the Postal Service transportation budget for next year.
The Postal Service already reported a better than expected operating profit October of $647 million versus the plan of $306 million and the same month last year of $289 million. While election mail no doubt has a lot to do with this result, early doubling of operating profit is a great way to start the year.
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