Otis Worldwide Corporation
CEO : Ms. Judith F. Marks
Quarterly earnings growth(YoY,%)
| Period | Revenue | Operating Income | EPS | Release Date |
|---|---|---|---|---|
| 2022 Q4 | -3.6% YoY | -1.0% | 7.6% | 2023-02-01 |
Anurag Maheshwari says,
Q4 2022 Financial Results
- Reported sales of $3.4 billion down 3.6%.
- Organic sales grew for the ninth consecutive quarter, accelerating to 6% with mid-single-digit growth in new equipment and high-single-digit growth in service.
- Adjusted operating profit excluding a $49 million Forex headwind increased $39 million with constant currency growth in both segments.
- Adjusted SG&A expense for the quarter and year improved 80 basis points as a percentage of sales.
- Adjusted EPS grew 4% or $0.03 in the quarter driven by operational growth of $0.07.
New Equipment Performance
- Otis new equipment orders in the quarter increased 4%, with EMEA and Asia-Pacific up high single digits and China orders returning to growth of mid-single digits.
- Pricing on new equipment orders in the quarter increased 3 points led by the Americas with solid performance in EMEA and APAC.
- Fourth quarter new equipment sales of $1.5 billion return to growth driven by over 10% growth in the America, EMEA and Asia Pacific with EMEA outperforming prior expectations.
- Operating profit margins were roughly flat for the quarter.
Service Segment Performance
- We saw an acceleration in our portfolio growth to over 4% with every region adding to the portfolio this year.
- Maintenance pricing, excluding the impact of mix and churn, came in as expected up about 3 points for the year, contributing approximately 1 point to overall revenue growth.
- Organic modernization sales grew 8.8% and similar to last quarter we saw broad growth across regions.
- We finished with our best service margin expansion for the year up 70 basis points in the quarter.
2023 Outlook
- New equipment organic sales to grow between 3% to 5% with Americas and EMEA up mid-single digits and Asia growing low single digits.
- Organic sales increasing 5% to 7% in service, with roughly 50 basis points of margin expansion.
- Expecting $3.35 to $3.50 in adjusted EPS driven by $0.23 to $0.31 of operating profit growth.
- Planning to complete $600 million to $800 million in share repurchases during the year.
- Expecting to generate $1.5 billion to $1.55 billion in free cash flow in 2023, 110% conversion of GAAP net income at the midpoint.
Judy Marks says,
New Equipment Orders and Backlog
- New Equipment orders grew 4% in Q4 2022 and 7% for the full year, with particularly strong performance in EMEA and Asia-Pacific.
- Adjusted backlog for New Equipment is up 11% at constant currency, giving solid multi-year visibility to grow sales.
Organic Sales and Service Growth
- Organic sales increased 2.5%, driven by service, which grew 6%.
- Industry-leading maintenance portfolio grew by 4.1% to stand at 2.2 million units.
Financial Performance and Shareholder Returns
- 7.5% adjusted EPS growth despite $156 million in foreign exchange-related headwinds.
- Generated $1.45 billion in free cash flow, allowing the company to return $1.3 billion of cash to shareholders through dividends and share repurchases.
New Equipment Sales and Innovation
- New Equipment sales returned to growth, particularly in EMEA and Asia-Pacific, mitigating the impact of mid-single-digit New Equipment sales decline in China.
- Continue to roll out digitally-connected elevator platforms, launching Gen 3 in India and expanding the deployment of Gen360 in Europe.
2023 Outlook
- Expect organic sales growth to be in the range of 4% to 6%, with total sales of $13.8 billion to $14.1 billion, up 1.5% to 4% at actual FX.
- New Equipment is expected to grow 3% to 5%, while Service segment is expected to grow 5% to 7%.
- Adjusted operating profit is expected to be between $2.2 billion and $2.25 billion, up $70 million to $130 million of actual currency or $130 million to $175 million accounting for foreign exchange headwinds.
- Expect adjusted EPS to be in a range of $3.35 to $3.50, up 6% to 10% or approximately $0.26 at the midpoint versus the prior year.
- Expect free cash flow of $1.5 billion to $1.55 billion between 105% to 115% of GAAP net income.
Q & A sessions,
Quarter 1 Segment Performance
- Service performance expected to be in line with full year guidance with mid-single digit growth and margin expansion
- New equipment segment expected to see weakness in sales and margin due to tough compare in China, supply chain inefficiencies, and labor shortages
- Corporate expenses to increase, with a couple of pennies of headwinds expected
- FX headwinds expected to be significant in Q1, with $55 million expected and majority of it to come in Q1
- EPS expected to be down a couple of pennies, and sequentially also could be down $0.01 or $0.02
2023 Growth Projection
- Projected growth of 6%, higher than 2022, with a mix of 4% portfolio and 3% pricing
- Repair business expected to grow at low to mid-single digit
- Modernization expected to be around 7% at the midpoint
Price and Commodities Impact
- Positive price and commodity impact expected for 2023
- Pricing expected to come through 50 basis points, which is roughly $30 million
- Commodities expected to have a $20 million to $30 million tailwind, with $100 million of headwind faced in the past two years
Investment and Mix Impact
- Investment to continue for margin growth, with 30 basis points growth in 2022 and 20 to 30 basis points expected in 2023
- Regional mix impact expected, with Americas-EMEA up mid single-digit, Asia mid to high single-digit, and China flat
- Project mix impact expected due to major projects being lower margin than volume business, but with high maintenance business, very high stickiness, and good margin
New Equipment and Service Segment Performance
- Fourth quarter new equipment orders increased 4%, with EMEA and Asia-Pacific up high single digits, and China orders returning to growth of mid-single digits
- New equipment adjusted backlog up 11% at constant currency with growth in all regions, including notably in China
- Pricing on new equipment orders in the quarter increased 3 points led by the Americas
- Service segment saw acceleration in portfolio growth to over 4% with every region adding to the portfolio this year
- Recaptures more than offset cancellations for the year with conversions as the growth driver
No bad stock 