Otis Worldwide (OTIS) - 2021 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales grew 14.9% to $3.4 billion, with organic sales up 10.3% [21] - Adjusted operating profit increased by approximately 18% or $83 million, with margin expansion of 40 basis points [21][22] - Free cash flow was robust at $541 million, with 176% conversion of GAAP net income [17] Business Line Data and Key Metrics Changes - New Equipment orders were up 18.4% at constant currency, with organic sales up 25.1% [24][32] - Service segment organic sales grew 1.3%, with adjusted operating profit margin expanding 60 basis points [26][27] Market Data and Key Metrics Changes - New Equipment orders in the Americas were up mid-teens, while Asia saw double-digit growth driven by China [16][24] - In China, the service portfolio grew in the low-teens, outperforming high-single digits from the previous year [50] Company Strategy and Development Direction - The company focuses on a Service model that drives approximately 80% of profit, with a strategy to leverage data and technology-based innovations [13][15] - The company aims to increase share repurchases to $0.5 billion for the year after completing $300 million in the first quarter [14][31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the revised 2021 outlook, expecting net sales to be in the range of $13.6 billion to $13.8 billion, up 6.5% to 8.5% versus the prior year [18] - The company anticipates strong performance in the New Equipment segment, with organic sales growth projected at 7.5% to 8.5% [32] Other Important Information - The company completed a $150 million debt repayment ahead of schedule and announced a 20% increase in the quarterly dividend [14] - The company is committed to ESG initiatives, including advancing STEM education and supporting young innovators [15] Q&A Session Summary Question: What is driving the strength in New Equipment growth in the Americas? - Management noted strong indicators such as the Architect Billing Index and positive trends in major projects, with New Equipment organic sales up almost 22% [42][43] Question: How is the company performing in China, particularly in Tier 1 and Tier 2 cities? - Management reported significant growth in Tier 1 and Tier 2 cities, with a low-teens growth in the service portfolio [49][50] Question: What is the outlook for backlog conversion to revenue? - Management expressed above-average confidence in backlog sufficiency to drive growth, expecting revenue conversion to be higher than typical [58][59] Question: How are raw material and logistics costs impacting the business? - Management acknowledged commodity headwinds but indicated that material productivity and targeted pricing strategies are being implemented to offset these costs [75][76] Question: What is the expected quarterly pattern for New Equipment sales? - Management indicated that while Q2 is expected to be strong, it may not see the same extent of growth as in previous years due to COVID impacts [92]