Operating margins widened for U.S. companies in the second quarter of 2022 despite expenses continuing to rise.

The cost of doing business for companies rated investment grade by S&P Global Ratings rose 5.6% in the second quarter of 2022 to $2.869 trillion. Yet the median ratio of operating expenses to total revenue for nonfinancial, investment grade-rated companies fell to 82.9% from 83.1% in the first quarter of 2022, according to data from S&P Global Market Intelligence.

The lower ratio indicates that companies are achieving returns more efficiently, although the calculation does not include major costs like paying debt interest. However, interest coverage ratios for the quarter suggest companies are increasingly well placed to cover the costs of their debt.

Climbing expenses

Expenses are rising as consumer price inflation of 8.2% feeds through in the form of higher input costs and wages. Companies with lower credit ratings are being more frugal.

For nonfinancial companies rated noninvestment grade — lower than BBB- — expenses rose just 2.4% in the second quarter to $726.44 billion.

As a result, the median operating expense-to-total revenue ratio for noninvestment-grade companies was squeezed tighter, dropping to 89.8% from more than 92% in the first quarter. The decrease more than reversed the rise in the first three months of the year.

The biggest increase in expenses was among investment-grade-rated materials companies. An 11.7% increase in the sector to $97.99 billion reflected tight global supply chains that have worsened because of Russia's invasion of Ukraine and sky-high energy prices in Europe, a key global supplier of manufactured goods.

By contrast, the noninvestment grade healthcare, energy and utilities sectors all lowered their expenses in the second quarter.

Strong revenues and declining expenses contributed to a sharp drop in the median operating ratio for noninvestment-grade energy companies from 94.7% to 73.2%.