Otis Worldwide (US:OTIS)2024-04-24 15:25Financial Data and Key Metrics Changes - The company reported net sales of $3.4 billion in Q1 2024, with organic sales growth of 3.8% [26] - Adjusted EPS grew by 10% or $0.08 in the quarter, driven by strong operational performance [26] - Adjusted operating profit increased by $50 million, with both segments contributing positively [26][27] - The company raised its adjusted EPS guidance to a range of $3.83 to $3.90, reflecting an 8% to 10% increase [12][31] Business Line Data and Key Metrics Changes - Service segment organic sales grew by 6.5%, marking the 12th consecutive quarter of mid-single-digit or greater organic sales growth [27] - New Equipment organic sales were roughly flat compared to the prior year, with Americas growing mid-teens and EMEA and Asia Pacific growing low-single digits [7][24] - Maintenance and repair services increased by 5.8%, driven by portfolio growth and robust repair volumes [8] Market Data and Key Metrics Changes - New Equipment orders were down 10% in Q1, with a double-digit decline in the Americas and high-teens decline in China [24] - The company expects New Equipment sales in China to be down approximately 10% due to weaker market conditions [60] - The backlog for New Equipment remained roughly flat year-on-year, indicating stability despite challenging market conditions [24] Company Strategy and Development Direction - The company is focusing on modernization as a strategic imperative, with a 13% growth in orders and a 15% growth in backlog at constant currency [5][10] - The modernization sales growth is expected to continue, driven by improved productivity and standardization efforts [86] - The company is committed to sustainability, having approved near-term science-based greenhouse gas emissions reduction targets [4] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strength of the Service business and the execution of the modernization strategy, which is expected to offset subdued New Equipment markets [10] - The company anticipates continued organic sales growth in the Service segment and a stable outlook for New Equipment in the Americas and EMEA [11][60] - Management acknowledged the competitive pricing environment in China but remains optimistic about maintaining margins through productivity improvements [102][104] Other Important Information - The company plans to repurchase approximately $1 billion in shares for 2024, up from $800 million previously [15] - The acquisition of the remaining minority interest in Nippon Otis in Japan for approximately $70 million is expected to be accretive to EPS [59] Q&A Session Summary Question: Regarding the growth in modernization orders and margins - Management noted that modernization orders were up almost 13% in the quarter, with backlog up 15%, indicating strong demand across all regions [40][41] Question: On the outlook for New Equipment and backlog - Management expects New Equipment to be flattish over the next few years, with Mod backlogs up 15% and continued performance in the Mod segment [47] Question: About Service margins and wage inflation - Management indicated that service margins are expected to remain strong, with no unusual wage inflation observed, and productivity improvements are helping to offset costs [71] Question: On capital deployment and M&A opportunities - Management stated that while there are no immediate large M&A opportunities, they remain open to bolt-on acquisitions that are accretive and strategically beneficial [82][129] Question: Insights on the competitive pricing environment in China - Management described the pricing environment in China as extremely competitive, with ongoing efforts to maintain margins through productivity and cost management [102][104]