Skanska, the Nordic region’s largest construction company, has reported a significant 73 percent fall in its fourth-quarter operating profit, a reflection of the challenges posed by the current downturn in global real estate markets. This decline, primarily attributed to property value writedowns, underscores the volatile environment the real estate sector is facing, particularly in the U.S. commercial segment. Despite the steep decline, the results were somewhat better than anticipated, sparking a 6 percent rise in the company’s shares during morning trading.
The Swedish conglomerate had pre-emptively signaled in January its intentions to record impairments worth 2 billion crowns ($191 million) for the quarter, alongside changes in the valuation across its property development operations due to faltering markets. These impairments starkly highlight the pressures on the real estate development sector, especially in the U.S., where Skanska holds a significant market presence.
CEO Anders Danielsson provided a mixed review of the year, noting a strong finish for the Construction division against the backdrop of persistently weak property markets affecting the Residential and Commercial Property Development segments. In light of these challenges, Skanska has paused its growth strategy within Project Development, shifting its focus towards sales and leasing activities to brace for an anticipated rebound in market activity.
The operational profit for the group, a major player in the U.S. construction market, stood at 957 million crowns ($91.4 million), a sharp decline from the previous year’s 3.53 billion crowns ($353 million). However, analysts from Jefferies have regarded the results as “solid,” highlighting the construction division’s unexpectedly wide profit margins and an uptick in housing sales as positive indicators amidst the prevailing market turbulence, according to a report by Reuters.
In its analysis, Jefferies underscored Skanska’s resilience in navigating through a challenging market landscape, citing the company’s valuation near lifetime lows and the potential for macroeconomic shifts to serve as tailwinds for recovery. The company’s reiteration of a ‘buy’ rating reflects a broader sentiment of cautious optimism for Skanska’s outlook, banking on the company’s strategic adjustments and the potential for policy interest rate cuts to invigorate the Nordic residential markets in the coming year.
Despite these hopeful prospects, Skanska remains pragmatic about the immediate future, anticipating continued declines in demand and further slowdowns within its commercial development markets, Reuters reported. The construction division’s order intake experienced a downturn, evidencing the broader market hesitations.
In a gesture of prudence amidst uncertainty, Skanska proposed a dividend for 2023 set at 5.50 crowns per share, a decrease from the previous year’s 7.50 crowns. This adjustment reflects the company’s strategic positioning, aiming to navigate the tumultuous market conditions while preparing for a resurgence in real estate activity as markets stabilize and growth opportunities re-emerge.
