Otis Worldwide (US:OTIS)2025-04-23 20:03Financial Data and Key Metrics Changes - Otis Worldwide Corporation reported net sales of $3.3 billion with organic sales flat year over year [24] - Adjusted operating profit increased 3% excluding a $16 million foreign exchange headwind, with adjusted operating profit margin expanding 40 basis points to 16.7% [24][11] - Adjusted EPS grew 5% or $0.04 in the quarter, driven by solid operational performance and a lower share count [25] Business Line Data and Key Metrics Changes - Service organic sales grew 4%, with maintenance and repair services up 3% and modernization orders increasing 12% [10][26] - New equipment organic sales declined 7%, with EMEA sales growing mid-single digits and APAC approximately 10% [29][30] - Service operating profit increased to $537 million, with operating profit margins expanding 40 basis points to 24.6% [28] Market Data and Key Metrics Changes - Americas new equipment orders grew mid-teens, while Asia Pacific saw orders growth greater than 20%, primarily driven by India and Southeast Asia [15][16] - New equipment orders in China declined greater than 20%, aligning with expectations [15][16] - The total backlog, including maintenance and repair, remains at historically high levels, positioning the company well for future quarters [14] Company Strategy and Development Direction - The company is focused on a service-driven business model, with a strong emphasis on modernization opportunities due to an aging installed base [17][19] - Otis is undergoing transformation initiatives, including Uplift and a China transformation program, aimed at driving process efficiencies and capturing service and modernization opportunities [50][52] - The company anticipates a significant opportunity in modernization, with 8 million units already in the prime modernization age [17] Management's Comments on Operating Environment and Future Outlook - Management expects the new equipment market to stabilize later in 2025, with a projected decline in global new equipment units of mid-single digits for the year [35][36] - The service business, representing approximately 90% of segment operating income, is largely insulated from tariff impacts, with expectations for adjusted free cash flow of approximately $1.6 billion [39][44] - Management remains confident in the service flywheel model and anticipates stronger growth in the second half of the year due to backlog execution and cost savings from transformation initiatives [57][60] Other Important Information - The company announced an 8% increase in its dividend, bringing cumulative dividend increases since the spin-off to approximately 110% [12][44] - Otis completed approximately $250 million in share repurchases during the quarter, with a target of $800 million for 2025 [44][45] Q&A Session Summary Question: Can you provide clarity on the gross headwind from tariffs? - Management indicated that the annualized impact of China tariffs is around $90 million, with mitigation efforts expected to offset half of this impact [66][68] Question: Are you seeing any impact at the local level in China regarding US companies? - Management stated there is no overt targeting of Otis in China and emphasized the importance of maintaining strong local relationships [78] Question: What is the pricing strategy in response to tariffs? - The company has increased prices across new equipment and maintenance services, with a focus on passing inflation costs to customers [80] Question: What is the outlook for new equipment orders in China? - Management expects a sequential improvement in the China market, projecting a decline of approximately 10% in the second half of the year [84] Question: Can you elaborate on the dynamics of the Americas new equipment outlook? - Management noted that while the market in North America was down 9%, Otis's orders grew mid-teens, indicating strong performance and market share gains [124][125]