Chapter 3 Financial Highlights

A. Financial Summary

To avoid redundancy between the 2006 Annual Report and this 2006 Comprehensive Statement on Postal Operations, financial highlights presented here are in a condensed format. Discussion and analysis focus specifically on Postal Service financial results for 2006, 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 2006 Annual Report.

1. Revenue

Revenue growth exceeded the projections in the operating plan. The increase was primarily due to an across the board rate increase of 5.4% implemented on January 8, 2006. Total revenue was $72,817 million, 4.0% greater than in 2005.

Total volume for the year was 0.7% above the 2005 total and some alterations in the composition of total mail volume must be noted. The mailstream has changed significantly since 2001 when First-Class Mail was the largest component. In the past 5 years, First-Class Mail volumes declined 5.9%, while Standard Mail volumes grew 14.0%. Standard Mail volume exceeded First-Class Mail volume for the second consecutive year, 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 2006’s volume set a new record of 213 billion pieces, the shifting mix of mail has affected revenues substantially.

First-Class Mail consists 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. eCommerce and electronic messaging are slowly replacing personal paper based correspondence and paper based commercial transactions using First-Class Mail. The rate of Standard Mail volume growth in 2006 was the lowest since 2002, when a recession resulted in the decline of advertising expenditures in all economic sectors and media. Standard Mail’s relatively weak volume growth is attributable to lackluster growth in Standard Regular Mail of 1.7% as well as a decline of 13.8% in Nonprofit Enhanced Carrier Route Mail. Despite weaknesses, Standard Mail continues to hold its ground in the advertising market by virtue of its two dominant characteristics: it can be targeted to specific audiences and its effectiveness can be measured.

As First-Class Mail volume has declined, the number of mailpieces delivered per address has declined as well. Yet, the number of delivery points has 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, as these trends continue, fulfilling the Postal Service’s universal service obligation will become ever more costly.

Mail volume 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 2006, as measured by gross domestic product (GDP) and retail sales, continued to be moderate in spite of an ease in oil prices and a downturn in the housing market. Within the parameters of the fiscal year, GDP grew 3.4% in 2006 with continued strength in retail sales.

Table 3-1 Total Revenue and Volume by Class of Mail
blank 2006 % of Total % Change 2005 % of Total 2006 % of Total % Change 2005 % of Total
blank Revenue ($ millions) Volume (pieces in millions)
First-Class Mail 3,7039 50.9 2.7 36,062 51.5 97,617 45.8 (0.5) 98,071 46.3
Priority Mail 5,042 6.9 8.8 4,634 6.6 924 0.4 4.2 887 0.4
Express Mail 918 1.3 5.3 872 1.2 56 0.0 1.8 55 0.0
Periodicals 2,215 3.0 2.5 2,161 3.2 9,023 4.2 (0.5) 9,070 4.3
Standard Mail 19,877 27.3 4.9 18,953 27.1 102,460 48.1 1.5 100,942 47.7
Package Services 2,259 3.1 2.6 2,201 3.1 1,175 0.6 0.8 1,166 0.6
International 1,794 2.5 1.6 1,765 2.5 793 0.4 (6.9) 852 0.4
Other* 3,673 5.0 9.8 3,345 4.8 1090 0.5 55.7 700 0.3
Total $72,817 100.0 4.0 $69,993 100.0 213,138 100.0 0.7 211,743 100.0

*The Revenue "Other" category includes mailgrams, special services, interest, emergency preparedness appropriations, and free matter for the blind. The Volume "Other" category includes internal Postal Service mail volume, mailgrams, and free matter for the blind.