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Skanska, a Swedish construction company and one of the largest in the United States, reported a significant decrease in its operating earnings for the first quarter. The drop was attributed to the adverse effects of high inflation and interest rates on the real estate market, which negatively impacted Skanska’s property development business. The company’s operating profit declined to 394 million crowns ($39 million) from 1.85 billion crowns the previous year, falling short of Refinitiv SmartEstimate’s forecast of 854 million crowns.
Skanska’s residential and commercial property development units both incurred losses during the quarter, causing the company’s shares to drop by almost 8% at the start of trading. The surge in inflation and the central bank’s interest rate increases have impacted the property development sector in recent quarters, particularly in Skanska’s domestic market of Sweden. Despite this, Skanska’s construction orders have remained relatively stable.
According to CEO Anders Danielsson, residential development activity remained subdued, leading to a decrease in revenues and unit sales, particularly in Skanska’s affordable housing sector. As a result, the company has initiated a cost-cutting and staff reduction program as part of a turnaround plan. Danielsson noted that there is market uncertainty, and potential buyers are hesitant due to the impact of high interest rates and inflation.
Housing prices in Sweden have dropped by over ten percent since the Riksbank began its aggressive tightening policy a year ago. Although the rate of decline has slowed in recent months, many economists forecast further decreases.
Skanska has predicted that both the residential and commercial property development sectors will experience sluggish markets in the next year. The guidance for construction, which comprises a significant portion of the company’s revenues, was mixed.
Skanska reported continued strong activity in the United States, where federal and state investment is driving demand. However, the order bookings for Skanska’s construction business fell from 30.0 billion crowns to 25.8 billion crowns in the quarter.
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