Higher-rated companies maintain operating margins as expenses rise

Companies maintained operating margins in the third quarter of 2022 even as expenses continued to creep higher for the majority of sectors.

The median ratio of operating expenses to total revenue for investment-grade-rated companies was unchanged in the third quarter at 83.1%, according to data from S&P Global Market Intelligence. Meanwhile, the ratio for non-investment-grade companies — rated below BBB- by S&P Global Ratings — rose slightly to 90.4% from 89.8% in the second quarter.

Higher wages, supported by labor shortages, have contributed to cost increases. Inflation in the cost of goods and services required to do business has also increased operating expenses.

Climbing expenses

Operating expenses for companies rated investment grade by Ratings rose in the third quarter by 4.4% to $2.938 trillion.

Communication services was a driver in the increase in investment-grade expenses with a $38.35 billion, or 21.7%, quarter-over-quarter increase to $347.95 billion. A $26.22 billion, or 7.2%, quarter-over-quarter increase in the energy sector and $21.21 billion, or 4.8%, rise in consumer staples also contributed.

Expenses also rose for the majority of non-investment-grade-rated sectors, yet a 23.2% decline in the communication services sector to $50.27 billion was enough to cause a 0.7% decline overall for companies rated below BBB- by Ratings.