SOURCE: United States Postal Service

United States Postal Service

November 15, 2016 17:06 ET

U.S. Postal Service Reports Fiscal Year 2016 Results

WASHINGTON, DC--(Marketwired - November 15, 2016) -

  • Net loss of $5.6 billion, driven by mandated retiree health benefits expenses
  • Controllable income of $610 million
  • Continued double-digit growth in revenue and volume in the Shipping and Packages business
  • Enactment of postal reform legislation remains urgently needed

After accounting for a $5.8 billion retiree health benefit prefunding obligation, the U.S. Postal Service posted a net loss of approximately $5.6 billion for fiscal year 2016 (October 1, 2015 - September 30, 2016), as compared to a $5.1 billion net loss for the year ended September 30, 2015. Excluding this prefunding obligation, the Postal Service would have recorded net income of approximately $200 million in 2016.

"To drive growth in revenue and better serve our customers, we continue to invest in the future of the Postal Service by leveraging technology, improving processes and adjusting our network," said Postmaster General and CEO Megan J. Brennan. "In 2016, we invested $1.4 billion, an increase of $206 million over 2015, to fund some of our much-needed building improvements, vehicles, equipment and other capital projects."

The Shipping and Packages business continued its strong performance with revenue growth of $2.4 billion, or 15.8 percent. This was offset by a decline in First-Class Mail revenue of $925 million, or 3.3 percent, due largely to the exigent surcharge expiration and continuing electronic migration. These two trends, together with steady standard or advertising mail revenues, and a slight increase in other revenues account for the $1.6 billion growth in operating revenue.

"The Postal Service continues to win e-commerce customers and grow our package delivery business. We deliver more e-commerce packages to the home than any other shipper because of our predictable service, enhanced visibility and competitive pricing," said Brennan.

Overall, the Postal Service reported operating revenue of $70.4 billion for 2016, excluding a $1.1 billion change in accounting estimate recorded during the year. This equates to an increase of $1.6 billion, or 2.3 percent, over last year (See Selected 2016 Results of Operations table below). Revenue growth was achieved despite the April 2016 expiration of the exigent surcharge mandated by the Postal Regulatory Commission. As a result of this expiration, revenue for 2016 was lower by approximately $1 billion than what it otherwise would have been. Going forward, without the surcharge, the Postal Service expects its revenue to decline from what it otherwise would be by almost $2 billion per year.

Despite the positive trends in some aspects of its business, the net loss suffered by the Postal Service this year cannot be ignored. Even with continued proactive and aggressive management, such losses are likely to persist for the foreseeable future because of mandated costs such as an unaffordable retiree health benefits program that is not fully integrated with Medicare, and an ineffective pricing system.

"This is why legislative and regulatory reforms remain critical for us to meet the needs of the American public now and well into the future," said Brennan.

Operating expenses increased in 2016 compared to last year. In addition to a $922 million increase in workers' compensation expense, compensation and benefits expenses increased by approximately $1.2 billion and transportation costs increased by $413 million. The growth in labor and transportation costs is largely due to the increase in Shipping and Packages volumes, which are more labor-intensive to process and require greater transportation capacity than mail. Transportation expense also increased to significantly improve service levels in 2016.

Controllable income for 2016 was $610 million compared to $1.2 billion for last year. In the day-to-day operation of its business, the Postal Service focuses on controllable income, which takes into account the impact of operational expenses including compensation and benefits; but does not reflect factors such as the legally-mandated expense to prefund retiree health benefits or the change in accounting estimate noted above (see Controllable Income below for a full description).

FY 2016 Revenue and Volume by Service Category Compared to Last Year
The following presents revenue and volume by category for the years ended September 30, 2016, and 2015:

                
                
    Revenue  Volume  
 (revenue in $ millions; volume in millions of pieces)  2016  2015  2016  2015  
                  
 Service Category                
  First-Class Mail  $27,281  $28,206  60,922  62,353  
  Standard Mail   17,982   17,992  80,885  80,030  
  Shipping and Packages   17,307   14,942  5,134  4,510  
  International   2,695   2,702  1,006  913  
  Periodicals   1,507   1,589  5,544  5,838  
  Other   3,596   3,359  450  391  
 Total before change in accounting estimate  $70,368  $68,790  153,941  154,035  
                  
  Change in accounting estimate   1,061   -  -  -  
                  
 Total revenue and volume  $71,429  $68,790  153,941  154,035  
                  
             

Selected FY 2016 Results of Operations and Change in Accounting Estimate
During the three months ended June 30, 2016, the Postal Service revised the estimation technique utilized to determine its Deferred revenue-prepaid postage liability for a series of postage stamps. The change resulted from new information regarding customers' retention and usage habits of Forever Stamps, and enabled the Postal Service to update its estimate of usage and "breakage" (representing stamps that will never be used for mailing due to loss, damage or stamp collection).

As a result of this change in estimate, the Postal Service recorded a decrease in its Deferred revenue-prepaid postage liability as of June 30, 2016, which caused an increase in revenue and decrease in net loss of $1.1 billion for the three months ended June 30, 2016, and for the year ended September 30, 2016. This change in accounting estimate resulted in a non-cash adjustment that does not impact the Postal Service's liquidity or access to cash and does not affect its controllable income.

This news release references operating revenue before the change in accounting estimate and operating revenue before the temporary exigent surcharge, which are not calculated and presented in accordance with accounting principles generally accepted in the United States (GAAP).

The following reconciles these non-GAAP operating revenue calculations with GAAP net loss for the years ended September 30, 2016, and 2015:

           
           
 (results in $ millions)  2016   2015  
             
 Operating revenue           
   Operating revenue before temporary exigent surcharge  $69,232   $66,672  
   Temporary exigent surcharge*   1,136    2,118  
  Operating revenue after exigent surcharge before change in accounting estimate  $70,368   $68,790  
   Change in accounting estimate   1,061    -  
 Total operating revenue  $71,429   $68,790  
   Other revenue   69    138  
 Total revenue  $71,498   $68,928  
             
 Operating expenses  $76,899   $73,826  
   Other interest (income) expense, net   190    162  
 Total expenses  $77,089   $73,988  
             
 Net loss  $(5,591 ) $(5,060 )
             
 * The temporary exigent surcharge expired on April 10, 2016.  
             
          

Controllable Income
This news release references controllable income, which is not calculated and presented in accordance with GAAP. Controllable income is a non-GAAP financial measure defined as net income (loss) adjusted for items outside of management's control and non-recurring items. These adjustments include the mandated prefunding of retirement health benefits, actuarial revaluation of retirement liabilities, non-cash workers' compensation adjustments and the change in accounting estimate.

The following reconciles GAAP net loss to controllable income and illustrates the income from ongoing business activities without the impact of non-controllable and non-recurring items for the years ended September 30, 2016, and 2015:

           
           
 (in $ millions)  2016   2015  
             
 Net loss  $(5,591 ) $(5,060 )
             
  PSRHBF prefunding expense   5,800    5,700  
  Change in workers' compensation liability due to fluctuations in discount rates   1,026    809  
  Other change in workers' compensation liability1   188    (502 )
  Actuarial revaluation of retirement liability2   248    241  
  Change in accounting estimate   (1,061 )  -  
             
 Controllable income  $610   $1,188  
             
 1 This is a net amount that includes changes in assumptions, as well as the valuation of new claims and revaluation of existing claims, less claim payments for the applicable periods.  
 2 Determined by OPM in 2015 to amortize the $3.6 billion unfunded FERS retirement obligation based on actuarial valuations and assumptions. The payments are to be made in equal installments over the next 30 years.  
             
          

Complete financial results are available in the Form 10-K, available at http://about.usps.com/who-we-are/financials/welcome.htm.

The Postal Service receives no tax dollars for operating expenses and relies on the sale of postage, products and services to fund its operations.

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