Dive Brief:
- Swedish construction firm Skanska reported higher-than-expected profits in the fourth quarter, at nearly $368 million — converted from Swedish Krona with the exchange rate at the time of the announcement — up from a projected $296 million, largely due to divestments in its commercial property development unit, according to Reuters. Operating profit for the year was $371 million, up from last year’s $275 million, and more than the projected $296 million.
- Skanska’s total construction orders fell from $3.9 billion in the third quarter of 2015 to $3.5 billion in the fourth quarter, a downward departure from expectations of $4.15 billion, Reuters reported. Total order bookings fell to $3.5 billion from almost $5 billion a year ago, also a departure from analyst expectations of $4.1 billion.
- Skanska attributed the dip in Q4 U.S. orders to delayed projects by its U.S. clients and the company being more "cautious," but it maintains an optimistic outlook for the building market for the next 12 months.
Dive Insight:
"The lower order bookings is due to the lumpiness of order bookings in general, as well as a significant amount of orders in USA Building getting postponed by the end of 2015," CEO Johan Karlstrom said in a statement.
Karlstrom told Reuters that he expects the company's U.S. clients to reimburse Skanska for increased costs incurred in the third quarter but said the money will come in during the 2016-2019 period. He also said that he expects the delayed orders that sliced at the fourth-quarter profit to come online throughout 2016.
Skanska's project development units, with commercial properties as the largest segment, represent a growing share of profit. Karlstrom told Reuters that conditions for selling its commercial property development projects are "very good." He added that the company saw higher-than-expected prices for commercial properties in booming U.S. markets, "which is one reason group profit overshoots guidance."
In October, Skanska announced it posted $74 million in write-downs in its U.S. construction operations in the third quarter. The company attributed the losses to client design changes and low productivity on six projects, with the majority of the loss coming from its civil division and the rest from its building division.
With Skanska's size and clout in the industry, the company's major projects and developments continue to grab headlines. Last month, Microsoft unveiled plans for Skanska to overhaul its 515,000-square-foot office in Mountain View, CA. Skanska, a widely-recognized expert in green building, will direct the major modernization effort, which will feature a 3.7-acre green roof.
Skanska also recently entered into a $94 million public-private partnership (P3) on the $173 million Irving Music Factory in Irving, TX, taking over from Balfour Beatty. Developer ARK Group said one of the reasons Skanska was selected for the project is because it has experience with the type of Live Nation venue that is going to serve as the anchor for the entire development.
In January, Skanska filed a multi-million-dollar lawsuit, with joint venture partner Trident, against the Charleston, SC, Gaillard Center’s three architectural firms and project management company. Skanska-Trident alleged negligence and breach of warranty of plans and specifications and is seeking $20 million in damages for each of its three causes of action and a jury trial.
Skanska was also involved in one of the most controversial projects of 2015, the Massachusetts Bay Transportation Authority’s Boston Green Line rail extension. After $1 billion in cost overruns and delays, the MBTA terminated White-Skanska-Kiewit, along with other lead contractors on the project, laying much of the blame on the procurement process for the guaranteed maximum price aspect of WSK’s contract. However, details have since come to light since that the MBTA’s reported lack of management and oversight before the project even started might have played a bigger role than anticipated in the project’s troubles.