Dive Brief:
- Swedish builder and developer Skanska reported 434 million Swedish Krona ($42.4 million) in profit for the first quarter of 2023, an 86% decrease from the previous three-month period and a 71% decrease from the same period in 2022.
- Construction revenue was a better metric for Skanska. It reported 37.5 billion SEK in revenue for its construction arm, which CFO Magnus Persson said makes up roughly 80% of its business. That revenue was up 12% from a year ago, but down 12% from Q4 2022.
- Persson pegged the company’s performance to a weak residential development market in the Nordics — Denmark, Sweden, Finland, Iceland and Norway — while reiterating confidence in its commercial and civil construction sectors, especially in the U.S.
Dive Insight:
According to Persson, an economic downturn in the Nordic region has made it a challenge for many would-be home buyers to secure mortgages, especially for low-income individuals, a key part of Skanska’s clientele.
“The market of this specific segment of the residential market has more or less disappeared almost during the quarter,” Persson said. “Because of that, when we don’t have the income, we eat the fixed costs, essentially.”
Despite the drop in profits, Persson said he isn’t concerned about the long-term effects of the downturn and said the contractor can weather the storm.
“We are not in a position where we will have to put assets to the market in order to preempt a liquidity situation or anything like that,” he said.
Civil outlook
Skanska’s construction portfolio remains stocked: Order backlog for Q1 was 217.9 billion SEK, down about 12 billion SEK from the previous quarter. That amounts to roughly 16 months of work, the contractor reported.
The company’s confidence in U.S. work continues to be high, largely spurred by infrastructure projects.
“I think you have an economy that’s been surprisingly resilient to interest rate increases, to inflation, et cetera,” Persson told Construction Dive. The Infrastructure Investment and Jobs Act has buoyed that confidence, Persson said.
Skanska has recently announced wins in the infrastructure sector, including two highway interchange projects in California worth $267 million and $120 million.
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Skanska, a global construction and development firm, has announced a sharp drop in their profits for the first quarter of 2021. The Swedish firm cited weak performance in their residential division as the primary contributor to a decrease in their profits.
Skanska reported a 5 percent drop in their pre-tax profits, falling to SEK 2.43 billion ($285.6 million) in Q1 2021. Skanska CEO Henrik Lundberg stated that while the company was successful in securing new orders in the first quarter, a weaker-than-expected performance within the residential division was the major factor in the lower profits.
The residential division’s profits fell by 55 percent to SEK 541 million ($63.9 million) compared to the previous year. Skanska’s property development unit also registered a decrease of almost 21 percent, with profits declining to SEK 630 million ($74 million).
However, the company saw more successes in other sectors. The infrastructure division recorded a net operating profit increase of 8 percent to SEK 1.6 billion ($189.1 million). This was mainly attributed to the completion of large construction projects in Sweden, Norway, and Finland. The commercial development division also experienced a 7 percent growth in pre-tax profits.
Looking ahead, Lundberg stated that the company expects the construction industry to remain volatile in high-cost markets due to increasing input costs and tougher competition which will lead to lower tender prices and future margins.
Despite the decrease in profits for the first quarter of the year, Skanska remains focused on divesting from their residential property and infrastructure businesses, as well as driving efficiencies within their operating model. The company still expects to post a profit margin of 3.5-4.0 % and a return on capital employed of 8-9% at the end of 2021.
