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Chapter 3
Financial Highlights

A. Financial Summary

To avoid redundancy between the 2005 Annual Report and this 2005 Comprehensive Statement on Postal Operations, financial highlights presented here are in a condensed format. Discussion and analysis focus on Postal Service financial results for 2005; aspects of financial management on which Congress has requested that the Postal Service report; business programs on which the Postal Service is required to report, such as the Breast Cancer Research and the Heroes of 2001 semipostal stamp programs; and topics of particular interest to Congress, such as appropriations. A more detailed analysis of the financial results is provided in the Postal Service’s 2005 Annual Report.

1. Revenue

Revenue growth in 2005 exceeded that projected in the operating plan. Although First-Class Mail, Periodicals, and Package Services revenues declined, overall revenue was 1.4 percent greater than in 2004. Total revenue was $69,993 million.

Total volume for the year was 2.7 percent above the 2004 total and some alterations in the composition of total mail volume must be noted. The mailstream has changed significantly since 2000 when First-Class Mail was the largest component. In the past 5 years, First-Class Mail volumes declined 5.3 percent, while Standard Mail volumes grew 12.1 percent. In 2005 Standard Mail exceeded First-Class Mail volume for the first time, as shown in table 3-1. The Postal Service expects this shift in the mail mix to continue. While Standard Mail service now leads volume growth and has overtaken First-Class Mail in the mailstream, it provides an average of only 19 cents in revenue per piece. First-Class Mail provides an average of 37 cents per piece. Standard Mail has also been more susceptible than First-Class Mail to fluctuations in the economy. Consequently, although 2005’s volume set a new record of 212 billion pieces, the shifting mix of mail has affected revenues substantially. At 2005 postage rates, the lower volume and specific mail mix of 2000 would have generated $3.3 billion more revenue.

First-Class Mail is comprised predominantly of single-piece and workshared volume. For many years, single-piece First-Class Mail volume has been in decline and has been offset only partially by growth in workshared First-Class Mail volume, resulting in the trend of lower First-Class Mail revenues and volumes. E-commerce and electronic messaging increasingly displace personal correspondence and paper based commercial transactions using First-Class Mail. Standard Mail volume growth in 2005 was aided by November 2004 election mail, as well as by increased strength of direct marketing and a surge in credit card marketing. Standard Mail volume also has benefited as "Do Not Call" telephone restrictions shifted some direct marketing efforts to mail.

As First-Class Mail volume has declined, the number of mailpieces delivered per address has declined as well. Yet, delivery points have continued to grow and with them, the infrastructure and personnel costs directly attributable to servicing those delivery points. A decline in the number of pieces delivered per delivery point, combined with shrinking revenue per mailpiece delivered, impacts the Postal Service’s costs of carrying out its universal service obligation. Consequently, fulfilling the Postal Service’s universal service obligation will become ever more costly as these trends continue.

Mail volume growth and revenue growth are dependent on the economy, the underlying demand for postal services, and the attractiveness of competitive alternatives. Growth in economic activity in 2005, as measured by gross domestic product (GDP) and retail sales, continued to be strong in spite of the disruption from Hurricanes Katrina and Rita in the latter part of the year. Within the parameters of the fiscal year, GDP grew 3.6 percent in 2005 with continued strength in retail sales.

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