Dive Brief:
- Skanska reported a drop in operating profit for its third quarter 2023 on higher revenue, a change it attributed to weakness in its development divisions, especially residential. Its construction work, on the other hand, remained strong, especially in the U.S., executives said during an earnings call Wednesday.
- The Stockholm-based contractor and developer posted 549 million Swedish krona ($48.9 million) in operating profit for the third quarter, a 64% decrease from 1.5 billion SEK in the same period in 2022.
- Construction work accounted for 1.4 billion SEK in operating profit, while commercial development posted a 277 million SEK loss, a widening from the 17 million SEK loss in the same period last year.Residential development profits plummeted from 130 million SEK last year to a loss of 494 million SEK in the third quarter of 2023.
Dive Insight:
CFO Magnus Persson noted during the call that revenue from residential work “obviously is quite low,” saying the market is weak in nearly every area in which the company operates — largely segmented into the Nordics, Europe and the U.S. In many of these areas, commercial and residential real estate has struggled recently, due to rising interest rates and inflation.
A 900,000 SEK hit from asset and goodwill impairment charges due to weak property development markets contributed to the dip in residential development revenue, the company said.
Skanska started no new homes in Q3, Persson said, indicating that if the company can’t identify a solid business case where it's confident in profitability, it won’t pursue a project.
“We are in a good position, we have a healthy, strong order backlog,” CEO Anders Danielsson said during the call. “I’m confident in the size of the order backlog. I’m also confident in the quality of the backlog.”
Although overall order bookings decreased 25% from a year ago, executives told investors bookings remained strong in the U.S., where 20.3 billion SEK in Q3 bookings — compared to 23.7 billion SEK a year ago — accounted for two thirds of the work won during the quarter.
Bookings won in the quarter include a $215 million biomanufacturing facility in Everett, Washington, and an $85 million ambulatory care cancer center in Livingston, New Jersey, a contract addition to an existing project.
Danielsson said the company has a strong outlook for construction in the U.S., noting that money flowing from the federal government and states for civil projects buoys confidence in the overall sector.
“We continue to have this long-term, stable performance from the construction business,” Persson said.
