US Postal Service ends fiscal year USD3 billion in the black

The Postal Service finished its fiscal year just over $3 billion in the black, helping the agency reduce its debt and keep a promise that postal rates won't go up until 2006.

Net income of $3.1 billion was down from $3.9 billion a year earlier, but was better than officials had expected thanks to cost cutting and an increase in advertising mail, according to postal chief financial officer Richard J. Strasser.

But Strasser also noted a third annual decline in the volume of first-class mail _ the cards and letters that account for the majority of the income for the post office.

"The financial results are masking changing circumstances," Strasser said. Increases in first-class mail have helped cover the rising costs of inflation in the past.

Now advertising mail is the growing segment, but volume can vary widely in response to business conditions and it contributes far less to the agency's bottom line.

"I don't think we face a crisis in the near term," Strasser said. But he stressed that the post office needs more flexibility in changing rates and managing its costs. A bill to change the way the agency operates has been stalled in Congress.

Postmaster General John Potter has promised that rates won't go up until 2006. The lengthy and complex process of changing rates, however, means that process is likely to begin early next year with a filing of a rate request at the independent Postal Rate Commission.

The post office does not receive any tax subsidy for its operations. However, depending on what happens in Congress with bills to give the agency more flexibility in operations, and changes in the way some pensions are accounted for, the agency could be forced to increase the price of a stamp from the current 37 cents to 41 cents or more.

While the post office has been in the black for two years, it is expected to break even in the current fiscal year and then face losses unless rates increase.

Overall, Strasser said, the post office had $68.9 billion in income in fiscal 2004, which ended in September. Expenses for the same period were $65.8 billion.

As of the end of the year the post office had $1.8 billion in outstanding debt, down from $7.3 billion a year earlier. Postal debt was $11.3 billion in 2001.

The post office added some 1.8 million delivery points _ new homes, businesses and other places that receive mail _ during the year.

An increase of 3.9 billion items in mail volume, combined with the increase in delivery points, kept revenue per delivery point at $417, the same as 2003.

However, Strasser noted, this figure has been declining, from $454 per delivery point in 2000. Delivery points have been increasing while mail volume shifts from first-class to advertising mail.

Indeed, advertising mail looks set to overtake first-class items in total volume soon. The 2004 totals were 97.9 billion first-class cards and letters, down 1.1 billion, compared with 95.8 billion advertising items, up 5.1 billion.

The bottom-line difference: Each first class item contributes 20 cents to the overall costs of the post office while each advertising item contributes 8 cents.

Postal Service posts 2004 profit, remains cautious
AFX International Focus 12-07-2004

SAN FRANCISCO (AFX) — The U.S. Postal Service posted a 2004 profit for the second year in a row on Tuesday, but cautioned that slack demand for its higher-margin services could put its financial future in doubt.

'We achieved our business goals in 2004 to improve service, reduce costs and continue to build our business,' said Postmaster General John Potter. 'These results underscore our promise to the American people to keep rates stable until 2006.'

Net income for the full year came in at $3.1 billion as expenses were cut by $900 million more than previous forecasts. Revenue grew by $265 million to $69 billion.

Total mail volume rose by almost 4 billion pieces to 206 billion, but first class mail fell by 1.1 billion pieces, marking the third straight year of decline. This could pose a major problem for the Postal Service, according to CFO Richard Strasser.

'For the first time in history, 2005 first class mail is projected to fall below standard mail as the largest volume product,' Strasser said. 'This shift in mail mix to lower revenue-per-piece mail classes will result in shrinking margins which are used to maintain universal service.'

The Postal Service, which reduced costs by $1.5 billion in 2004, said it will continue to focus on its five-year goal of slashing costs by $5 billion. A total of $4.3 billion has been saved toward that goal so far.

'While these strategies have resulted in historic productivity levels and cost savings over the last few years, we must recognize that additional efforts to take costs out of the system will require fundamental structural changes,' Potter added.

This story was supplied by CBSMarketWatch. For further information see www.cbsmarketwatch.com.