Skanska’s California Dream Comes True as Apple Work Helps

Skanska AB, the Swedish company that’s become New York’s second-largest building contractor, is expanding its operations in California to tap rising local infrastructure spending and build on its expertise from working on Apple Inc.’s new $5 billion headquarters.

The construction company is moving engineers and project managers experienced in subway projects from its New York base to the West Coast, Mike McNally, Chief Executive Officer of Skanska USA, said in a phone interview.

The U.S. market has become increasingly important for the Stockholm, Sweden-based company, which was founded in the late 19th century as a concrete manufacturer in the city of Malmoe, as growth in Europe has faltered and the company has scaled down its presence in emerging economies. Skanska has come from “almost nowhere” to become one of the largest contractors in California where tax concessions are boosting infrastructure spending, according to McNally.

“We might be number one in the next year or two,” the executive said. The Swedish company climbed five places to rank 18th in California’s top contractors last year, according to data from industry analyst ENR.

Last month, a Skanska joint venture won a $927 million contract for a subway through downtown Los Angeles. It is also part of a venture that has been named preferred bidder for a San Diego light-rail project.

Shale Gas

Skanska, with a market value of $10 billion, derived 34 percent of its revenue from the U.S. in 2013, and at the end of the year, 44 percent of its order backlog was made up of U.S. contracts. The stock has risen 16 percent this year in Stockholm trading. It declined 0.3 percent to 152.3 kronor today as of 9:40 a.m.

Skanska is also aiming to build more industrial facilities in Texas and Louisiana to benefit from the booming shale gas industry. McNally said the company decided to expand from its U.S. base on the East Coast when it realized that the high level of civil construction work in the New York region might not be sustainable.

The New York wing of his company has been kept busy with high-profile projects such as the expansion of Manhattan’s No. 7 subway line and a steel structure for the transit station at the World Trade Center Transportation Hub.

“We had too many eggs in the New York basket,” McNally said. “Those jobs, we thought, will be coming to an end, and when that happens our revenue will start to decrease.”

Tax Initiatives

Skanska transferred some 150 rail engineers from New York to the West Coast, where tax initiatives such as the Los Angeles County’s Measure R -- a half-cent sales tax increase –- have been implemented to fund infrastructure projects. It’s looking to take on more large-scale infrastructure work that often involves higher risk and higher margins than traditional work.

Skanska is not the only European company that has positioned itself for a sharp upturn in construction markets in the U.S. West and South. The world’s third-largest cement maker, Germany’s HeidelbergCement AG, said recently that it is benefiting from having 40 percent of its U.S. production in the two “boom states,” Texas and California.

“Our plants are more or less sold out,” Bernd Scheifele, chief executive officer of HeidelbergCement, said at a press conference in March, adding that the company expected to increase cement prices twice this year. “That shows how bullish we are for Texas and California.”

Apple Campus

Skanska is currently bidding for West Coast projects including the $1.5 billion Westside subway extension in Los Angeles and a planned eastern extension of Seattle’s Central Link light-rail line.

The company has also built a considerable presence in the general building market, with the prestigious contract to build Apple’s new headquarters.

Skanska first announced in April 2012 that its joint venture with DPR Construction had bagged a $256 million contract to build a “state-of-the-art facility” in the U.S. for an undisclosed client. Although Skanska hasn’t commented on the order, public documents filed with the Cupertino city council show they were selected for the construction of the spaceship-like Apple Campus 2, one of the largest building projects in the country.

Texas Headache

The next step for Skanska USA is to establish a firm foothold in Texas, one of the three areas that the company has targeted for expansion and the Lone Star state is a difficult market, according to McNally.

“I’m pulling my hair out over Texas,” he said. While the company has made some headway in building construction and property development, establishing itself as a civil contractor with the capacity to take on major infrastructure work has been harder.

“That requires an acquisition,” McNally said. “We’ve been looking at targets for three or four years, and sometimes we get close but we’re very picky.”

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