Otis Worldwide Corporation
CEO : Ms. Judith F. Marks
Quarterly earnings growth(YoY,%)
| Period | Revenue | Operating Income | EPS | Release Date |
|---|---|---|---|---|
| 2023 Q2 | 6.7% YoY | 19.1% | 19.7% | 2023-07-26 |
Judy Marks says,
Q2 2023 Earnings Highlights
- Otis delivered a strong Q2 and a successful first half of the year
- Organic sales grew high-single digits in both segments
- Adjusted operating profit margin expanded by 20 basis points
- Adjusted EPS grew by 7%
- Generated $409 million in free cash flow
- Returned $175 million to shareholders through share repurchases
New Equipment and Modernization Backlogs
- New equipment share was up slightly in Q2 and up about 50 basis points in the first half
- Maintenance portfolio grew by 4.2%
- New equipment and modernization backlogs continue to grow
Customer Highlights
- Selected to provide 28 units, including 11 SkyRise units, to the Hôpital Vaudreuil-Soulanges in Montreal
- Providing a total of 57 units for the Iconic Tower in El Alamein, Egypt
- 280 elevators and escalators to be installed in Tianjin Metro’s new Line 7 in China
- Installing 255 units for the new Bhopal and Indoor Metro in India
ESG Progress
- Received Zero Waste to Landfill Certification for all three Spanish factories
- San Sebastian factory received LEED Platinum certification
- Continuing efforts to improve environmental impact
Q2 Results and 2023 Outlook
- Overall organic sales increased by 9.5%
- New equipment market outlook: Asia Pacific growth, EMEA decline, Americas decline, China decline
- Service side outlook: global installed base growth of roughly 5%
- Updated 2023 outlook: organic sales in the range of 4.5% to 6%, net sales in the range of $14 billion to $14.3 billion
- Adjusted operating profit expected to be $2.25 billion to $2.28 billion
- Adjusted EPS expected in the range of $3.45 to $3.50
- Share repurchases increased to $800 million
UpLift Program
- Launching program to transform operating model for sustainable profitable growth
- Expected to generate approximately $150 million in savings over the next two years
- Focus on efficiency, sales specialization, innovation, and customer intimacy
- Results to be seen in better performance, growth, operating profit, and returns for shareholders
Anurag Maheshwari says,
Net Sales and Organic Sales Growth
- Net sales of $3.7 billion were up 6.7% and organic sales were up 9.5% in Q2 2023.
- Strong performance in all business lines drove the increase in organic sales.
Adjusted Operating Profit
- Adjusted operating profit increased by $49 million at actual FX and $60 million at constant currency.
- Higher volume, productivity, and pricing in both segments contributed to the increase in adjusted operating profit.
New Equipment Orders and Backlog
- New equipment orders faced a tough compare and were down 12% at constant currency in Q2 2023.
- New equipment backlog, however, trended higher and was up 5% at constant currency versus the prior year.
- All regions experienced growth in new equipment backlog, providing visibility for sales in the second half and beyond.
Service Segment Results
- Maintenance units were up 4.2%, with growth in all regions.
- Modernization backlog expanded by 14%, driven by strong orders growth of 16% in the quarter.
- Service organic sales grew 9.4% with growth in all business lines.
- Maintenance and repair grew 9.1% from better-than-expected repair volume.
Revised Outlook
- Total Otis organic sales are expected to be up 4.5% to 6%.
- Adjusted operating profit growth at constant currency is expected to be in the range of $155 million to $175 million.
- Service margins are still expected to expand about 50 basis points to 24%.
- New equipment margins are expected to expand 20 basis points to 6.8%.
- Adjusted EPS is expected to be up 9% to 10%.
- Increased share repurchase target to $800 million.
- Outlook for free cash flow is $1.5 billion to $1.55 billion or roughly 110% conversion.
Q & A sessions,
Cost Takeout and Productivity Initiatives
- The company aims to achieve cost takeout mainly in G&A as part of its productivity initiatives.
- They plan to streamline processes and improve consistency geographically.
- They will focus on supply chain optimization and indirect cost reduction.
Market Outlook
- Asia Pacific market for new equipment is expected to grow mid-single digits.
- Americas market is projected to be flattish to slightly down in the second half of 2023.
- EMEA market is anticipated to be down high-single digits for the rest of 2023.
- China’s new equipment market is expected to decline by 10%.
- The service market is still solid, growing mid-single digit.
Mod (Modernization) Business
- The mod business is performing well, with strong orders and backlog.
- Asia Pacific has shown a standout performance in the mod segment.
- China’s mod business is accelerating due to MX mod product.
- Mod business is expected to drive margin expansion as it becomes more production-ready.
Otis ONE Connectivity
- The company is shipping all Gen3 units with Otis ONE connectivity.
- The number of connected units is increasing significantly, with over 800,000 units connected.
- Otis ONE is driving service productivity and helping with service pricing.
- Connected units are also leading to higher service margins and retention rates.
Key Accounts and State-Owned Enterprises
- The company has been successful in developing key accounts, especially state-owned enterprises.
- Key accounts and Tier 1/Tier 2 cities are outperforming the segment.
No bad stock 