Expenses are consuming a larger portion of revenues at US 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.

The increase occurred despite total operating expenses for companies rated BBB- or higher by 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.

Those declines show that companies are cutting back on expenses like rent and payrolls as they deal with high interest rates and stubborn inflation.

Sector view

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.