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What’s in a name? Controllable income is operating profit

In the third quarter of this year, the Postal Service decided to change the name of a key line in its quarterly results slide presentation. It changed the name of a line that was previously called “Operating Income/(Loss)” to “Controllable Income/(Loss).”

This line item is important because it shows what is actually going on in the Postal Service’s mail business. It excludes factors that are not part of core mailing business, such as the retiree health benefits pre-funding schedule and the impact of market interest rates on workers’ compensation projections. This line item allows observers to see the progress of the Postal Service business each period (quarterly or annually) using an apples-to-apples comparison with the prior period. It is, as USPS itself says in financial reports, the most meaningful indicator of business performance.

The Postal Service has referred to this line item for years as “Operating Income/(Loss).” “Operating Income/(Loss)” is synonymous with “Operating Profit/(Loss).” It reflects the earning power of a business. The Postal Service’s “Operating Income/(Loss)” line references can be seen in its most recent Integrated Financial Plan (the 2014 business plan) and in results presentations for the first quarter and second quarter of 2014.

Although, for still-difficult-to-understand reasons USPS decided to change the description of this line in its most recent presentation to the media, it is important to know that this line means the exact same thing—the Postal Service is operationally profitable in 2014. Through the first nine months of 2014, USPS had a $1 billion operating profit. The Postal Service’s financial performance clearly is getting better, not worse, no matter how the line item is labeled.

While USPS has consistently shown operating results excluding retiree health benefits pre-funding and/or workers’ compensation accounting adjustments in official financial statements (for example, see page 19 of this quarterly results report), it has only sporadically identified these items in press releases. For example, in a May 2012 press release, the Postal Service clearly explained how its operating results looked without the impact of retiree health benefits pre-funding and workers’ comp accounting, and it included a table that reconciled its net results with its operating results. In a November 2010 results press release, USPS noted the impact of workers’ compensation accounting adjustments on its bottom line (for more on the subject of workers’ comp accounting expenses see blog post, “The cause of a $1.6 billion swing”). More often than not, however, the Postal Service’s press releases have concentrated almost entirely on the “Net Income/(Loss)” line, leaving people in the dark about what is really going on with the Postal Service. Simply by looking at its press releases, it has been difficult for outside observers of USPS to understand how its core mail business performs from quarter to quarter or year to year.

Did declining mail cause net losses in a particular quarter or did retiree health benefits pre-funding and workers’ compensation accounting cause them? Major policy decisions hinge on a clear understanding about the Postal Service’s results, which is why it is so important for USPS to more fully explain the difference between net results and the more important operating results.

Posted In: Research, Economics

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