Skanska's Project Backlog Hits 4-Year High As Profits Shrink

Skanska saw profits slide last quarter, but the publicly traded Swedish construction giant is betting a historically high project backlog will lead it through difficult times.

The firm's third-quarter earnings show profits down roughly $68M from the previous quarter but up about $2M from the previous year. Skanska also reported its highest project backlog this past quarter in at least four years, $20.7B worth of projects equating to 14 months of production, CEO Anders Danielsson said on his Oct. 26 earnings call.

"We have a solid performance in the third quarter again," Danielsson said. "We have a strong profitability in construction. We have a historically high order backlog. And we also have attractive property development portfolio."

Skanska's construction business has been buoyed by strong infrastructure spending in the United States. The firm's largest U.S. contract signed last quarter was a $422M expansion of the Portland International Airport in Oregon, and it has a contract with the Virginia Port Authority to build a $223M offshore wind farm, among other projects in the Northeast.

Other sectors were slower, and could present a continued challenge for Skanska. Last quarter, Danielsson warned inflation would present a challenge for the construction industry, and in recent weeks other developers and construction managers have begun to acknowledge that previously agreed-to deals may no longer move forward due to interest rate hikes.

Danielsson said the commercial property development business continued to be slow this quarter, but noted that leasing was up in the third quarter compared to the second.

Looking ahead, Skanska still believes in commercial property development, and said there may be room for additional growth in life sciences, which has been a hot sector in the United States in recent years. 

"I can see the largest opportunity for growth in the Commercial Development is in the U.S.," Danielsson said. "We, of course, going to continue to build up the investment portfolio and that is really — strategically, really good for the company. Now we can work in the whole value chain and we can get a lot of synergies with that strategy."