Dive Brief:

• Swedish construction giant Skanska reported a smaller decline in profits than expected during 2020's third quarter, helped by its residential division even as commercial construction continued to lag and it lowered expectations for its U.S. nonresidential work.
• The company reported operating profit of 1.53 billion Swedish krona ($174.3 million) versus analyst expectations of 1.09 billion krona, according to Reuters. During the same time period a year ago, it had an operating profit of 2.15 billion krona, a drop of 29%. Revenues for the quarter were down 9% at 114.6 billion krona, and new orders fell from 34.9 billion krona a year ago to 31.8 billion krona, as the company said it's being more selective about the projects it takes on.
• Profitability in its nonresidential construction division rose to 3% from 2.8% last year, but it came on lower revenues of 34.4 billion krona, down 16% from a year ago. “It is on lower volumes, which is from different causes. One of them is, of course, COVID-19,” said CEO Anders Danielsson, on a call with investment analysts. “We can also see that clients are postponing their ramp up of new projects.”

Dive Insight:

The lower-than-expected fall in profits at Skanska comes after Los Angeles-based Tutor Perini reported a 21% surge in revenue during Q3, saying that impacts from COVID-19 had been minimal.

While Skanska reported it was still seeing skittishness due to COVID-19 from owners about kicking projects off during the pandemic, its smaller decline in profits came after a fall of 69% during Q2, as the effects of the pandemic set in.

Danielsson highlighted positive momentum in Skanska’s residential business in the Nordic countries and the rest of Europe in a low interest-rate environment, even as its nonresidential revenue fell, which mirrors the bifurcation of residential and nonresidential markets in the U.S. While homebuilding has been going strong in the States, commercial projects have been faltering, with several billion-dollar-plus projects halting construction before completion recently.

Danielsson said the company’s better-than-expected results came as it learned how to operate during the pandemic more efficiently.

“We also learned, I would say in Q3, to live [with it],” Danielsson said. “We are in the middle of a pandemic, but we have found ways to handle that, to keep the social distancing in our projects, and the use of protection, if needed, to help in the process.”

The company’s backlog of 15 months was up 14% year to date — including gains from Q1 before the pandemic set in — even though it dipped 3% during Q3.

At the same time, however, Danielsson conceded that the company’s improved profits in its construction division were at least partly attributable to more of its mature projects reaching fruition, with fewer new projects kicking off, which have higher upfront costs.

“At the latter part of the project's life, when you have gotten past the risks, then we extract the sort of, relatively speaking, higher margin from that project,” Danielsson said. “And of course, as volumes are decreasing, on the average, we get the more mature portfolio. So this very likely has some sort of upwards effect on that [profitability].”