How have operating expenses and SG&A changed relative to revenue, and what does that imply for cost efficiency?
Short answer:
The press‑release excerpt you provided contains only revenue figures (‑ $736.9 M in Q2‑2025 vs. $664.7 M a year earlier) and does not disclose the absolute amounts of operating expenses or SG&A (selling‑general‑and‑administrative) costs. Because the specific expense numbers are missing, we cannot calculate the exact change in those expense lines, nor can we compute the precise expense‑as‑a‑percentage‑of‑revenue ratios that would tell us whether cost‑efficiency improved or deteriorated.
Below is a structured, step‑by‑step explanation of what we can infer, what we cannot determine from the data provided, and what you should do next to get a complete picture of cost‑efficiency.
1. What the News Does Tell Us
| Metric | Q2‑2025 | Q2‑2024 | % Change |
|---|---|---|---|
| Revenue (total) | $736.9 M | $664.7 M | +11 % |
| Revenue (ex‑divested business) | $736.9 M | $626.6 M | +18 % |
- Revenue Growth: The company grew top‑line by 11 % (or 18 % when you strip out the impact of a divested segment). This is a solid, double‑digit increase quarter‑over‑quarter year‑over‑year.
2. What We Don’t Have
| Missing Item | Why It’s Needed | What We Can’t Compute |
|---|---|---|
| Operating expenses (total of cost‑of‑goods‑sold + other operating costs) | Needed to calculate Operating expense ratio = Operating expenses ÷ Revenue | Whether operating costs rose slower, at the same pace, or faster than revenue. |
| SG&A (selling, general & administrative) | Needed for SG&A ratio = SG&A ÷ Revenue | Whether the “overhead” portion of the business is becoming more or less efficient. |
| Operating income / margin | To see if the additional revenue translated into higher operating profit. | The bottom‑line impact of expense changes. |
| Quarter‑over‑quarter (Q1‑2025) numbers | To see the trend within the fiscal year. | Whether the cost structure is trending upward or downward. |
Because these line items are missing, we cannot calculate:
- Operating expense % of revenue (e.g., “operating expenses were 54 % of revenue, down from 55 % a year ago”).
- SG&A % of revenue (e.g., “SG&A fell from 12 % to 10 % of revenue”).
- Operating margin trend (e.g., improvement from 5 % to 6.5 % or the reverse).
3. How to Interpret Cost‑Efficiency When You Do Have the Numbers
When you obtain the missing figures, you can assess cost‑efficiency through the following steps:
| Step | Calculation | Interpretation |
|---|---|---|
| 1. Compute expense‑to‑revenue ratios | Operating expense ratio = (Operating expenses ÷ Revenue) × 100 SG&A ratio = (SG&A ÷ Revenue) × 100 |
Lower percentages versus prior periods = improved cost efficiency; higher percentages = worsening efficiency. |
| 2. Compare year‑over‑year % changes | % change in expense = (Current‑year expense – Prior‑year expense) ÷ Prior‑year expense. Do the same for revenue. |
If expense growth < revenue growth, the company is stretching the dollar (i.e., more revenue per dollar of cost). |
| 3. Examine margins | Operating margin = Operating Income ÷ Revenue. Higher margin after the revenue increase signals good cost control. |
A higher margin indicates that more of each dollar of sales stays with the company after covering operating costs. |
| 4. Look at SG&A trends | SG&A often includes “fixed” overhead (e.g., corporate salaries, rent). A decline in SG&A % indicates that the company can spread its fixed costs over a larger sales base—an indicator of scale‑economies. | |
| 5. Consider macro‑factors | • Divestitures: The company removed a business segment. If SG&A was not proportionally reduced (e.g., they kept the same corporate head‑count), SG&A may look worse on a “pure‑organic” basis. • Industry‑specific cost drivers (raw‑material prices, labor rates, logistics). |
A change in cost‑structure can be driven by external factors, not only internal efficiency. |
Example (Hypothetical)
| Year | Revenue | Operating Expenses | Op‑Expense % | SG&A | SG&A % |
|---|---|---|---|---|---|
| Q2‑2024 | $664.7 M | $380.0 M | 57.2 % | $80.0 M | 12.0 % |
| Q2‑2025 | $736.9 M | $405.0 M | 55.0 % | $68.0 M | 9.2 % |
| % Change | +11 % | +6.6 % | –2.2 pp | -15 % | -2.8 pp |
Interpretation: Revenue grew 11 % while operating expenses grew only 6.6 % → operating expense ratio fell → improved cost efficiency. SG&A fell even more dramatically, suggesting that the company has been tightening its corporate overhead—a positive sign for margin expansion.
4. Why the Missing Data Matters
- Investor Insight: Cost‑efficiency is a key driver of earnings per share (EPS) and free cash flow (FCF). Without knowing whether expenses are scaling with revenue, investors cannot fully assess whether the top‑line growth translates into higher profitability.
- Management Evaluation: If management claims “improved cost efficiency,” the data must show a decline in expense‑to‑revenue ratios, not just raw expense growth.
- Valuation Impact: Higher operating margins typically support a higher forward P/E (or lower implied discount rate) in a valuation model. Conversely, rising expenses as a % of revenue would compress margins and could lead to a lower valuation.
5. What to Do Next – Obtaining the Complete Numbers
Read the full press release (or the accompanying Form 10‑Q) for the complete consolidated statement of operations. The key line items to locate are:
- Cost of sales / cost of goods sold (COGS)
- Operating expenses (sometimes broken into “cost of services”, “distribution”, etc.)
- Selling, General & Administrative (SG&A)
- Operating income and operating margin.
Check the “Management Discussion & Analysis (MD&A)” section for commentary on cost‑efficiency initiatives (e.g., “we reduced SG&A by $X million through workforce optimization and facility consolidation”).
Look at the “Non‑GAAP” numbers (if the company provides an adjusted or non‑GAAP earnings release) because the company may present “adjusted operating expenses” that exclude one‑time items (e.g., restructuring, acquisition-related integration costs). That can give a clearer view of underlying cost trends.
Compare to prior quarters (Q1‑2025, Q2‑2024) and the full‑year guidance to assess whether the Q2 trend is a one‑off or part of a sustained improvement.
6. Bottom‑Line Takeaway
- From the data you provided we can only confirm that revenues rose (11 % overall, 18 % on a “pure‑organic” basis).
- No explicit expense data is provided, so we cannot directly quantify how operating expenses and SG&A changed relative to revenue.
- Interpretation of cost efficiency hinges on the expense‑to‑revenue ratios. If the company's operating expenses and SG&A grew ** slower** than revenue (i.e., their % of revenue fell), then cost efficiency is improving. If they grew ** faster** than revenue, the opposite is true.
- To answer the question definitively, you need the actual numbers for operating expenses and SG&A from the full earnings release or the quarterly Form 10‑Q. Once those are obtained, apply the calculations outlined above to gauge the company’s cost‑efficiency trends.
If you obtain the missing numbers, feel free to share them and I can walk you through the exact calculations and what they mean for Arcosa’s profitability and valuation.