Rising operating expenses, including wages and energy bills, squeezed margins for nonfinancial U.S. companies rated below BBB- in the first quarter of 2022.

Sky-high inflation translated into higher costs of doing business in the first three months of the year and, with the Consumer Price Index hitting 9.1% in June, the pressure on margins is likely to have increased.

The median operating expenses-to-total revenue ratio — an important metric for measuring a company's margin — for non-investment-grade-rated nonfinancial companies rose to 92.0% in the first quarter of 2022, up from 90.8% in the fourth quarter of 2021, according to data from S&P Global Market Intelligence.

Broad rise

The increase was broad-based, with a higher median ratio in the non-investment-grade component of eight of the 10 nonfinancial sectors tracked by S&P Global.

The rise in the ratio was driven by an increase in operating expenses to $710.99 billion in the first quarter of 2022, up from $697.1 billion at the end of 2021.

Operating expenses fell slightly for investment-grade-rated companies, to $2.724 trillion from $2.749 trillion. That contributed to a slight decline in the median ratio for companies rated BBB- or higher, to 83.1% from 83.6% in the fourth quarter of 2021.

Energy hit

In the midst of the COVID-19 pandemic, a number of debt and liquidity metrics convulsed before steadily returning to pre-COVID-19 levels. Operating expenses ratios, however, have generally been more stable.

The median investment-grade ratio has hovered between 82% and 86% in that period, while for non-investment-grade companies the range has been 90% to 95%.

Revenues have broadly kept pace with rising expenses during that time. The energy sector, though, endured a sharp increase in operating expenses in the first quarter of 2022: Costs rose 15.8% among investment-grade energy companies and 32.8% among lower-rated companies, contributing to stark increases in the median ratios for companies in the sector.