Operating Expenses Take a Bigger Share of U.S. Corporate Revenues in Q4/23

Expenses are consuming a larger portion of revenues at U.S. corporations rated by S&P Global Ratings despite widespread efforts to trim day-to-day costs of doing business. The median ratio of operating expenses compared to total revenues for companies rated BBB- or higher rose to 83.7% in the fourth quarter of 2023 from 82.2% in the third quarter, according to the latest data from S&P Global Market Intelligence.

Key highlights from the analysis include:

  • The increase occurred despite total operating expenses for companies rated BBB- or higher by S&P Global Ratings falling 5% in the fourth quarter of 2023 to $2.797 trillion, the lowest total since the second quarter of 2022.
  • Non-investment grade companies reduced their operating expenses even more drastically, with an 11.1% decrease quarter over quarter.
  • Information technology was the only sector to strengthen its operating margins in the last three months of 2023, with the median operating expense-to-total revenue ratio for investment-grade companies improving to 79.8% from 81.4% in the previous quarter. That was the lowest ratio the sector has seen in two years amid a 14.5% reduction in operating expenses for investment-grade companies.
  • The median ratios for all other sectors rose in the fourth quarter of 2023. Among companies rated BBB- or higher, those in the energy and consumer discretionary sectors saw their ratios increase by more than three percentage points.
  • The operating costs of companies in the consumer discretionary sector increased by 4.1% to $409.74 billion, while companies in the energy sector slashed their operating costs by 7.9% to $316.40 billion. While lower-rated companies across all sectors reduced their operating expenses quarter over quarter, the median ratio for such companies climbed to 91.5%, the highest figure in more than two years.

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Terry Mulreany
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