Otis Worldwide Corporation OTIS reported mixed results in the first quarter of 2025, wherein adjusted earnings surpassed the Zacks Consensus Estimate while net sales missed the same. On a year-over-year basis, the top line declined, but the bottom line increased.
The quarterly results were impacted by a soft sales trend in the New Equipment segment, mainly due to a more than 20% decline in China and a high-single-digit decline in the Americas. On the other hand, year-over-year growth in contributions from the Service segment, driven by increased trends in organic maintenance and repair sales and organic modernization sales, supported overall performance.
Moreover, favorable pricing and productivity aided the bottom line in the quarter. Moving forward into 2025, OTIS aims to continue focusing on innovation and implementing other strategic initiatives to improve its growth momentum, along with ensuring shareholder value and operational efficiency. With this strong performance, confidence in the strategy and commitment to creating value for its shareholders, the company yesterday announced a dividend increase for the fifth consecutive year.
Following the results, OTIS stock lost 3% in today’s pre-market trading session.
Inside OTIS’ Headlines
The company reported adjusted earnings of 92 cents per share, which topped the Zacks Consensus Estimate of 91 cents by 1.1%. The reported figure increased 5% from the year-ago quarter’s earnings per share (EPS) of 88 cents. (Find the latest earnings estimates and surprises on Zacks Earnings Calendar.)
Net sales of $3.35 billion missed the consensus mark of $3.41 billion by 1.7% and declined 3% on a year-over-year basis. Organically, net sales were flat year over year. Currency headwinds impacted sales by 3%.
Otis Worldwide Corporation Price, Consensus and EPS Surprise
Otis Worldwide Corporation Price, Consensus and EPS Surprise
Adjusted operating margin expanded 40 basis points (bps) year over year to 16.7%, attributable to favorable Service segment performance and mix. This was partially offset by an increase in corporate costs. Our model predicted the adjusted operating margin to expand 20 bps year over year to 16.5%.
Segment Details of OTIS
New Equipment: This segment’s net sales of $1.16 billion fell 9% from the prior-year period. Organic sales declined 7%, which was accompanied by a 3% headwind from foreign exchange. Our model predicted organic sales for the New Equipment segment to decline 7.2%.
New Equipment orders were down 1% at constant currency. The growth of more than a 20% rise in Asia Pacific and mid-teens improvement in the Americas was offset by more than a 20% decrease in China and a mid-single-digit decline in EMEA. The segment’s backlog decreased 4% at actual currency and 3% at constant currency.
Segment operating margin expanded 20 bps year over year to 5.7%. The downtrend was due to impacts of lower volume, relatively flat pricing and unfavorable mix, which was partially offset by price, productivity and commodity tailwinds.
Service: The net sales of this segment increased 1% year over year to $2.19 billion. A 4% rise in organic sales was partially offset by a 3% negative impact from foreign exchange. Organic maintenance and repair sales increased 3% and organic modernization sales rose 10% from the year-ago quarter. Our model estimated organic sales for the segment to grow 6%. Modernization backlog at constant currency increased 14% year over year.
Segment operating margin expanded 40 bps year over year to 24.6%, due to higher volume, favorable pricing and productivity, partially offset by inflationary pressures including higher labor and material costs, and mix.
Financial Position of OTIS
Otis Worldwide had cash and cash equivalents of $1.92 billion as of March 31, 2025, down from $2.3 billion reported in 2024-end. Long-term debt decreased to $6.92 billion as of the first-quarter end from $6.97 billion in 2024-end.
Net cash flows provided by operating activities were $190 million for the March quarter, up from $171 million a year ago.
Adjusted free cash flow (FCF) totaled $186 million for the quarter, up from $155 million a year ago.
OTIS Provides Updated 2025 Guidance
The company expects net sales to be between $14.6 billion and $14.8 billion, up from the prior expectation of $14.1-$14.4 billion. The new projection indicates approximately 3-4% growth. Organic sales growth is projected to be between 2% and 4%. Organic New Equipment sales are expected to be down between 1% and 4%. Organic Service sales are expected to be up in the range of 5-7% compared with the prior expected band of 6-7%.
Adjusted operating profit is expected to be between $2.4 billion and $2.5 billion, reflecting an increase of $105-$135 million at constant currency, excluding a tariff impact of ($75) million to ($45) million, and an increase of $55 million to $105 million at actual currency, including the tariff impact.
Adjusted EPS is anticipated between $4.00 and $4.10, indicating 4-7% year-over-year growth.
Adjusted FCF is expected to be approximately $1.6 billion. OTIS expects the adjusted effective tax rate to be approximately 24.8%.
OTIS' Zacks Rank & Recent Construction Releases
Otis Worldwide currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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