Skanska shares drop on builder's surprise first-quarter profit drop

Key Points
  • Q1 EBIT 488 million SEK vs consensus 1.01 billion
  • Commercial Development unit EBIT 84 million SEK vs 860 million
  • CEO: commercial development unit performed as expected
  • Construction unit profit less than expected
  • Shares down 4 percent
Skanska CEO: Seeing increased profitability in construction

Swedish builder Skanska reported an unexpected fall in first-quarter operating earnings on Friday as profit at its commercial development operations tumbled, sending shares down.

Operating profit at the Nordic region's largest builder was 488 million crowns ($51.2 million) against a mean forecast in a poll of analysts of 1.01 billion.

A year earlier, Skanska - which is also one of the biggest builders in the United States - recorded profit of 652 million crowns.

Operating profit at the commercial property development division plunged to 84 million from 860 million, against an analyst forecast of 484 million.

CEO Anders Danielsson however told Reuters the unit had performed as expected and that divestments made in the quarter had good margins. Interest remained strong from tenants as well as investors in all markets, he said in an interview.

Skanska's commercial and residential property development operations have grown rapidly in recent years to account for more than three-quarters of profit.

Property development involves a greater risk for the builder, but offers higher profits than construction ordered by a client.

"The Commercial Property division is the one that's clearly worse (than expected) but it's very volatile and I expect it to pick up during 2019," Kepler Cheuvreux analyst Albin Sandberg said.

"Construction margins are not great but no catastrophe either," he said.

The Skanska logo is displayed on protective headwear at a construction site in Sollentuna, Sweden, on Thursday, Feb. 4, 2010. Skanska AB announce their earnings tomorrow.
Casper Hedberg | Bloomberg via Getty Images

Shares, however, fell on the news, down 4.4 percent at 0704 GMT to 6-week lows.

Profit at the construction unit, which books the bulk of group revenue and which is being restructured, grew less than expected.

Danielsson said Skanska still had an overall positive market outlook.

"However, political and macroeconomic uncertainties make it difficult to predict how long these relatively favourable market conditions will last," he added.

Skanska lowered its outlook for the Swedish non-residential construction market slightly and stood by other earlier market segment outlooks for the next 12 months.