Total operating expenses for rated US companies drop in Q1 from recent peak

Nonfinancial US companies rated by S&P Global Ratings trimmed their operating expenses by more than $150 billion in the first quarter, according to S&P Global Market Intelligence data.

Total operating expenses for the group dropped to $3.718 trillion from $3.869 trillion in the fourth quarter of 2024. Investment-grade companies — those rated BBB- or higher by Ratings — accounted for the bulk of the quarter-over-quarter reduction, reporting a combined drop of $137.91 billion in operating costs. Non-investment-grade companies, meanwhile, shed $13.74 billion in operating expenses during the quarter.

The reduction in costs, which include rent, employee pay, office supplies, equipment and other non-capital expenditures, followed a typical cycle in recent years of trimming expenses in the first quarter before gradually building them up again as the year progresses. Still, the latest cuts are off a peak in the fourth quarter of 2024, and total expenses in the first quarter of 2025 were still higher in all but two quarters during the past three years.

For investment-grade companies, only two sectors — energy and utilities — reported higher operating costs in the first quarter compared to the prior three months, with increases of $1.25 billion for energy and $11.23 billion for utilities. Non-investment-grade companies, meanwhile, were evenly split between rising and falling costs. Materials, information technology, healthcare, consumer staples and utilities companies reported higher combined operating expenses, while other sectors all reported drops.

Ratios

Despite trimming costs, both investment-grade and non-investment-grade companies recorded higher median ratios of operating expenses to total revenue in the first quarter compared to the fourth quarter of 2024. The ratio rose by 15 basis points to 82.91% for the median higher-rated company, with a sharper rise of 92 basis points for lower-rated companies to 92.19%. The rising ratios indicate that, for the median company, lower costs in the first quarter coincided with lower revenues, a similar trend reported over the past few years.

Just three investment-grade sectors — materials, energy and real estate — reported higher median operating cost ratios to total revenues in the first quarter than in the prior three months. The median ratio rose most for energy companies, increasing 2.5 percentage points to 84.31%.

For non-investment-grade companies, all but two sectors — energy and consumer staples — reported a higher median ratio quarter over quarter. Operating expenses as a share of revenue grew most for information technology companies, rising 4.65 basis points to 95.51%.