2010 Financial Performance

I know many people are not into reading footnotes but the footnote on page 2 of the McKinsey & Co. "Future Business Model" presentation dated March 2, 2010 is worth noting.

It states that the January year-to-date results are better than the 7.8 billion loss projected loss for 2010.

I have taken a quick look at the January year-to-date results and they suggest that the Postal Service will have a bad year but not a disastrous year.  Specifically:

• Through January losses are 1.8 billion less than plan.   Results have been better than plan every month so far this year.  Improvements from plan will not produce an operating profit but will likely generate an operating no more than half of what the Postal Service originally projected.
• Results are beating plan because both revenue is above and costs below plan.
• Revenue better than plan reflects improvement over a "worst-case-scenario" plan not growing mail volumes.   My current projection for year-to-year change in mail volume from 2009 are as follows:
  
  
  
  • Single piece First Class:   -7.9% (This rate of decline is double the pre-recession rate and is worse than the rate of decline in 2009.)
  • Bulk First Class:    -4.2%
  • Periodicals:   -10.6%
  • Standard Mail:  -3.5% (Part of the decline reflects the fact that FY 2009 had substantial election year mailings that will not repeat in FY 2010.)

• Better results do not make a self sufficient Postal Service.  As I have noted earlier, break-even is not sufficient for self sufficiency.  Self sufficiency will require an EBITDA ratio of around 15%. (EBITDA ratio is the ratio of Earnings before interest, taxes, depreciation, and amortization and revenue.)
  
  
  
  
  • EBITDA to sales ratio for the first four months is -0.1%.
  • EBITDA to sales ratio excluding the retiree health care payment is 11.8%.
  • Both of these ratios will decline as losses grow over the remainder of the year although it is possible that the EBITDA ratio excluding retiree health care payments could remain positive.

These financial results suggest that the Postal Service's assessment that neither just fixing the retiree health care payment schedule or changing its operating processes, services, cost structure and rates within the framework of existing law and regulations will be enough to make it self sufficient.