SKANSKA: Currency overshadows stronger report

The most important takeaway from this report is that Skanska’s construction business is actually performing well. Currency is what makes it look weaker than it really is. Revenue fell 10 percent compared with the same quarter last year, which sounds alarming. However, if you strip out the effect of a much weaker US dollar and other currency moves, the decline was only 1 percent. Operating profit, i.e. the money left after paying the costs of running the business, grew by 18 percent in local currencies. That is a meaningful difference, and many casual readers will miss it completely. 

The construction margin, which is operating profit as a share of revenue and shows how much of every krona earned turns into profit, came in at 3.0 percent for the quarter, up from 2.8 percent a year ago. On a rolling 12-month basis, it stands at 4.2 percent, just above Skanska’s own target of at least 4 percent. This target has historically been difficult to achieve, so surpassing it is significant. Earnings per share were 2.42 kronor, essentially unchanged from 2.40 last year. Not exciting, but stable. 

The order backlog increased to 267.5 billion kronor, equal to 19 months of production, which is genuinely good news. It means Skanska has work secured well into 2027, with strong demand from data centers and semiconductor facilities continuing to support the US pipeline. The company booked 6.9 billion kronor in tech-related construction orders in the quarter alone. 

The numbers still look uncomfortable in project development. Return on capital employed, which measures how efficiently the company generates profit from the capital tied up in its property development business, came in at just 2.1 percent against a stated target of 10 percent or more. This significant discrepancy has persisted for several quarters. Commercial property in the US in particular is dragging the whole segment down. 

At first glance, an operating cash flow of minus 1.3 billion kronor seems like a serious problem, and it is more than five times worse than in the same quarter last year. However, closer inspection reveals that the main cause is a significant land acquisition in Stockholm, where Skanska bought land in a prime location near St. Erik’s Eye Hospital for future residential and office development. Land purchases are capital outlays, meaning money spent today on assets that are expected to generate future returns, and this is very different from cash disappearing into a loss. 

Furthermore, Skanska already has 5.4 billion kronor of sold but not yet handed-over commercial properties in the pipeline, of which 4.7 billion is expected to affect cash flow before year-end. The underlying liquidity position, meaning the total cash and credit available to the company, stands at a comfortable 27.7 billion kronor. 

The construction market is broadly holding up, but the details are uneven. Skanska’s Nordic residential development business is still struggling with a continued slump in demand for new housing across Sweden and Norway, with low sales volumes, weak pricing, and projects carrying narrow profit margins. Central Europe, especially Poland and the Czech Republic, looks very different, with growing economies, lower interest rates, and strong demand for new homes. 

Meanwhile, the commercial real estate transaction market in the Nordics and Central Europe is recovering gradually, while the US market remains subdued. Skanska is dealing with all of these conditions at the same time, which makes the overall result harder to read than it would be for a more specialized competitor.

The first thing to watch is whether the expected commercial property sales for the rest of 2026 actually close on schedule. The expected cash inflows of 4.7 billion kronor are significant, and any delay would put pressure on both cash flow and the market’s confidence in management’s guidance.

Secondly, it is important to see how Skanska handles the ongoing gap between its return targets and actual performance in project development. The construction division is now meeting its margin target, which represents real progress. However, as long as the development side earns 2 percent on capital while targeting 10 percent, the overall investment case remains more of a story of potential than delivery. Closing that gap in a more structural way, not just quarter by quarter, is what would really change the narrative.