Skanska scores 324% operating profit increase YoY in Q3

Dive Brief:

Skanska beat analysts' estimates in its third quarter as the Swedish company continued its guiding focus on "profit over volume," when choosing which jobs to bid on, according to officials during an earnings conference call this week. For its global operations, the firm recorded an operating profit of 2.1 billion Swedish kronor (U.S. $221.6 million), a 324% increase from the same quarter last year. Analysts, according to Reuters, had predicted an operating income of approximately SEK 1.8 billion. Total Q3 revenue for the company was SEK 44.5 billion, an 8% increase from the same period in 2018.
For its U.S. construction business unit, Skanksa posted Q3 revenues of SEK 5 billion and total operating income of SEK 1.1 billion versus a Q3 2018 loss of SEK 310 million. Skanska's construction orders, which totaled SEK 34.9 billion, were also up in Q3 2019.
Skanska President and CEO Anders Danielsson said that he expects profitability within the company's construction business to continue to improve as older projects are completed and replaced with higher-profit ones.

Dive Insight:

Danielsson said in the company's Q3 report that there are economic factors indicating a slowdown on the horizon but that, except for the United Kingdom construction market, the company has yet to see them impact its construction business negatively. He did note, however, that competition for business is intense and that rising costs have presented the company with challenges.

The U.S. civil construction and building markets, he said in the report, are strong, particularly in the aviation, education, data center and healthcare sectors.

Major U.S. construction bookings in Skanska's third quarter included:

A SEK 3.3 billion ($340.4 million) office project for a confidential client;
Children's Hospital of Philadelphia for SEK 1.7 billion; and
A SEK 1.1 billion replacement high school for Highline Public Schools in Burien, Washington.

The good news that came with Skanska's latest financial reports is a far cry from the same quarter last year when the company announced it would no longer bid on mega design-build projects in which it held an equity stake. Skanska later clarified that it would still build on projects using design-build and other alternate delivery methods.

That announcement came on the heels of a $100 million write-down in Skanska's public-private partnership (P3) business because of cost overruns resulting from low productivity and delays.

One of its major U.S. P3 projects is the 21-mile, $2.3 billion I-4 Ultimate project, where five workers have been killed since construction started in 2016. Skanska USA is performing the work there as part of a joint venture (SGL Constructors) with Granite Construction and The Lane Construction Corp. The P3 is also in negotiations with the Florida DOT for a potential $100 million change order for the project and an extra 245 days.

But, as Danielsson said in the report, things are looking up for Skanska — as evidenced by three big fourth-quarter wins for its U.S. construction business.

Just this week, Skanska USA announced that it signed a $778 million contract with the Central Puget Sound Regional Transit Authority for construction of the Lynnwood Link Extension light-rail project. The company will build almost 4 miles of new guideway, and the project will include more than 2 miles of aerial guideway, two elevated stations and a five-story parking garage.

Skanska this month also announced that it had signed a major deal for a Bronx, New York City, highway interchange project with the New York State DOT. The project is valued at $290 million.

It also won a contract to build a 335,000-square-foot UNC Hospitals Surgical Tower at the University of North Carolina's Chapel Hill campus.