Otis Worldwide Corp (OTIS) Q1 2025 Earnings Call Highlights: Strong Service Growth and Dividend Increase Amidst Market Challenges

Otis Worldwide Corp (OTIS) reports a 5% EPS growth and an 8% dividend increase, while navigating tariff impacts and regional sales declines.

Author's Avatar
Apr 24, 2025
Summary
  • Net Sales: $3.3 billion, with organic sales flat year-over-year.
  • Adjusted Operating Profit: Increased 3%, with a 40 basis points expansion in margin to 16.7%.
  • Adjusted EPS: Grew 5% in the quarter.
  • Adjusted Free Cash Flow: $186 million generated.
  • Share Repurchases: Approximately $250 million completed.
  • Dividend Increase: Announced an 8% increase, cumulative increase since spin approximately 110%.
  • Service Organic Sales Growth: 4%, with growth across all business lines.
  • Modernization Orders: Increased 12%, with backlog up 14% at constant currency.
  • New Equipment Orders: Declined 1% overall, with regional variations.
  • New Equipment Operating Profit Margin: Increased 20 basis points to 5.7%.
  • 2025 Financial Outlook: Net sales expected between $14.6 billion and $14.8 billion.
  • Adjusted Free Cash Flow Outlook: Approximately $1.6 billion for 2025.
  • Share Repurchase Target for 2025: $800 million.
  • Adjusted EPS Outlook for 2025: $4 to $4.10 per share.
Article's Main Image

Release Date: April 23, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Otis Worldwide Corp (OTIS, Financial) reported a 5% growth in adjusted EPS for the first quarter, driven by solid growth in service and margin expansion.
  • The company announced an 8% increase in its dividend, marking a cumulative dividend increase of approximately 110% since its spin-off.
  • Modernization orders increased by 12%, with a backlog up 14% at constant currency, indicating strong future growth potential.
  • The service segment showed resilience with a 4% organic sales growth, supported by a 40 basis points expansion in adjusted operating margin.
  • Otis Worldwide Corp (OTIS) was recognized by Fortune as one of the world's most admired companies and named to Wall Street Journal's Best Managed Companies list, reflecting strong corporate reputation and management.

Negative Points

  • New equipment organic sales declined by 7% in the quarter, with significant declines in China and the Americas.
  • The company faces a potential $45 million to $75 million negative impact on operating profit in 2025 due to tariffs on Chinese imports.
  • Despite strong performance in other regions, new equipment orders in China declined by more than 20%, aligning with expectations of market stabilization later in the year.
  • The repair growth was muted in the first quarter, up only low single digits, due to timing of backlog execution.
  • Otis Worldwide Corp (OTIS) anticipates a mid-single-digit decline in global new equipment units for the year, with particular weakness expected in the Asia region.

Q & A Highlights

Q: Can you provide more details on the tariff impacts and mitigation efforts?
A: Cristina Mendez, CFO, explained that tariffs are primarily affecting material purchases, with an annualized impact of $100 million. Mitigation efforts include supply chain adjustments and commercial contract changes, aiming to offset half of the impact through these measures.

Q: Are there any retaliatory actions against US companies in China affecting Otis?
A: Judith Marks, CEO, stated that Otis has not experienced any targeted actions in China. The company maintains strong local relationships and continues to operate effectively in the region.

Q: How is Otis managing the backlog and pricing in light of tariffs?
A: Judith Marks noted that Otis is having commercial discussions with customers to address cost increases. While some flexibility has been observed, the company is cautious in its guidance and continues to monitor the situation closely.

Q: What is the outlook for the China market and its impact on Otis?
A: Judith Marks mentioned that the China market was down 15% in Q1, with expectations for continued decline in Q2. However, Otis is focusing on service growth in China, which now represents 40% of its China revenue, aligning with its strategy to become more service-driven.

Q: Can you elaborate on the service revenue growth and its drivers?
A: Judith Marks highlighted that service revenue growth was impacted by repair execution delays. However, the repair backlog is strong, and the company expects acceleration in service revenue growth throughout the year as backlog conversion improves.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Also check out: (Free Trial)