US corporations trimmed operating expenses by nearly $180 billion in the first quarter of 2024, almost entirely driven by investment-grade firms, according to the latest S&P Global Market Intelligence data.
Companies rated BBB- and higher by S&P Global Ratings trimmed operating expenses by 5.5%, or $175.32 billion, from the fourth quarter of 2023, dropping their combined spend on day-to-day costs to $2.986 trillion. Lower-rated companies, meanwhile, cut expenses by 0.6% to a combined $584.29 billion.
Speculative-grade operating expenses hit the lowest combined total since at least the third quarter of 2021, reflecting cutbacks by companies dealing with higher interest rates pushing up costs.
Among investment-grade sectors, consumer discretionary companies cut their combined expenses the most, reducing spending by $56.68 billion, or 11.9%, to $420.31 billion. The utilities sector was the only investment-grade sector to report an increase in operating expense, with combined spending up nearly $5 billion.
Half of 10 non-investment-grade sectors reduced spending during the quarter, compared to the fourth quarter of 2023. Companies in the materials, communication services, information technology, healthcare and industrials sectors increased operating expenses by a combined $13.19 billion.
Ratios
The cut in operating expenses contributed to an improvement in the median ratio of operating expenses to total revenue for investment-grade-rated companies, which fell to 83.5% in the first quarter from 83.8% a quarter earlier. While still higher than the recent low of 82.2% in the third quarter of 2023, the improvement shows greater efficiency at generating sales for higher-rated companies.
Communication services companies trimmed their median operating ratio the most within the investment-grade set with a drop of 4.4 percentage points to 79.3%. Meanwhile, energy companies reported the largest rise in median operating ratio, with a 4.3-percentage-point jump to 84.3%.
For lower-rated companies, the median operating ratio worsened to 92.4%, an increase of 1.6 percentage points quarter over quarter. Energy companies again reported the largest rise at 7.5 percentage points to 89.0%, while utility companies cut their median operating ratio the most with a 3.9-percentage-point fall to 89.7%.
?$responsive$)
