US companies are reducing their operating expenses as a proportion of revenues to boost efficiency.
The median ratio of operating expenses compared to total revenues for companies rated investment grade by S&P Global Ratings declined to 82.8% in the second quarter, down from 83.8% in the first quarter, according to the latest data from S&P Global Market Intelligence. A lower ratio is typically more desirable as it indicates a company can generate revenue at lower costs.
The decline in the ratio came as the total operating expenses of companies rated BBB- or higher fell 2.8% in the quarter to $2.779 trillion. Operating expenses include day-to-day business costs such as wages and business travel.
The decline in operating expenses was particularly sharp in the information technology, utility and consumer staples sectors, which recorded quarter-over-quarter declines of 23.9%, 19.2% and 10.3%, respectively.
Non-investment grade
Companies with weaker balance sheets also trimmed costs. Total operating expenses of non-investment-grade companies fell 2.6% to $592.29 billion. This contributed to a decline in the median ratio to 89.8% from 91.3%.
The decline was led by a massive 31.9% cut in operating expenses by non-investment-grade utilities and a 10.9% reduction in the lower-rated segment of the consumer discretionary sector.
