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Dive brief:
- Skanska reported a drop in third-quarter 2023 operating profit on higher revenue, a change it attributed to weakness in its development divisions, particularly residential. On the other hand, its construction work remained strong, especially in the US, executives said during an earnings call on Wednesday.
- The Stockholm-based contractor and developer posted an operating profit of SEK 549 million ($48.9 million) in the third quarter, down 64% from SEK 1.5 billion in the same period in 2022.
- Construction saw an operating profit of SEK 1.4 billion, while commercial development posted a loss of SEK 277 million, an increase on the loss of SEK 17 million in the same period of the year past SEK 494 million in the third quarter of 2023.
Diving knowledge:
CFO Magnus Persson noted on the call that residential work revenue is “obviously quite low,” saying the market is weak in almost every area the company operates in, largely segmented in the Nordics, Europe and the usa In many of these areas, commercial and residential real estate have struggled recently, due to rising interest rates and inflation.
The SEK 900,000 impact of asset and goodwill impairment charges due to weak property development markets contributed to the drop in residential development income, the company said.
Persson said Skanska did not start any new housing in the third quarter, indicating that if the company cannot identify a strong business case where it is confident of profitability, it will not go ahead with a project.
“We are in a good position, we have a healthy and strong order book,” CEO Anders Danielsson said on the call. “I’m confident in the size of the order book. I’m also confident in the quality of the backlog.”
While overall order bookings fell 25% from a year ago, executives told investors reserves remained strong in the USwhere SEK 20.3 billion in Q3 bookings, compared to SEK 23.7 billion a year ago, accounted for two-thirds of the work gained in the quarter.
Reserves earned in the quarter include a $215 million biomanufacturing facility in Everett, Washington, and $85 million ambulatory care oncology center in Livingston, New Jersey, a contract added to an existing project.
Danielsson said the company has a good outlook for construction in the US, noting that money flowing in from the federal government and states for civil projects is boosting confidence in the industry as a whole.
“We continue to have this stable, long-term performance of the construction business,” Persson said.
