Otis Worldwide Corporation Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Q2 Highlights: Service drove strong performance with organic Service sales up 4%, modernization orders up 22% and backlog up 16% at constant currency. UpLift on track for $200M run rate savings, China transformation expected $40M run rate savings. Tariff impact reduced to $25M-$35M. Repurchased $300M in shares, closed acquisition of 8 urban elevator locations. Adjusted EPS $1.97 in H1, up 2%.
• Orders Performance: Combined New Equipment and modernization orders grew 4%, excluding China up 14%. New Equipment orders down 1% globally but ex-China up 11%. Modernization backlog up 16% at constant currency.
• Second Quarter Results: Net sales $3.6B, flat YOY. Adjusted operating profit margin flat at 17%. Adjusted EPS down 1% in Q2, free cash flow $243M in Q2.

Segment Performance

• Service: Organic sales grew 4%. Maintenance and repair organic sales grew 4%, with repair accelerating to 6% in Q2. Modernization organic sales grew 5%, with China up over 20%. Service operating profit was $578 million, up $26 million at constant currency, and margins expanded to 24.9%.
• New Equipment: Organic sales declined 11%. EMEA grew 7%, Americas and Asia Pacific declined, China declined over 20%. New Equipment operating profit was $68 million, down $41 million at constant currency.

Guidance

• 2025 Outlook: Net sales $14.5B-$14.6B, slight decline. Adjusted operating profit $2.4B-$2.5B, unchanged. Adjusted EPS $4-$4.10, 4%-7% growth. Organic sales expected 1%, Service organic growth ~5%, New Equipment -7%. Tariff impact $25M-$35M. Adjusted free cash flow $1.4B-$1.5B. Q3 New Equipment organic sales ~-7% with lower margins, Service organic ~5%. Q4 expected strong growth, full year 6% growth at midpoint.

Risks

• China Challenges: Continued soft market conditions, strict credit controls, declining backlog impacting New Equipment.
• Tariffs: Uncertainty around global trade policy affecting New Equipment orders and execution.
• Economic Challenges: Macroeconomic concerns in China, U.S., and other regions impacting New Equipment sales.

Question and Answer

Q: Jeff Sprague on Service growth, churn, mix A: Service organic sales up 4%, maintenance up 4% due to portfolio growth and pricing. Repair accelerated to 6%, modernization growth muted due to project timing. Churn and mix effects due to portfolio growth in less mature markets.

Q: Nigel Coe on retention, Americas growth, China outlook A: Retention improved slightly. Americas New Equipment orders up 15%, strong in infrastructure. China market weak, but sequential improvement expected.

Q: Nigel Coe on 3Q to 4Q earnings step-up A: Q3 New Equipment margins down due to lower volumes and cost actions. Q4 New Equipment contribution normal, Service acceleration leads to EPS growth.

Q: Nicole DeBlase on China transformation savings carryover A: China transformation run rate savings increased to $40M, incremental savings for 2026. New Equipment facing price and commodity headwinds.

Q: Steve Tusa on China backlog and 2026 outlook A: China backlog down, but other regions growing strongly. Not guiding for 2026 yet, but other regions strong.

Q: Rob Wertheimer on North America demand and project delays A: North America backlog strong, some project delays due to tariffs and construction challenges. Uncertainty on tariffs and interest rates affecting job sites.

Q: Julian Mitchell on free cash flow and operating margins A: Free cash flow affected by business mix, Service collects later. Operating margins improved due to Service growth, UpLift, and China transformation.

Q: Christopher Snyder on Service margins and Americas orders conversion A: Service growth driven by repair, not mod. Americas orders conversion affected by long lead times, permitting, and construction challenges.

Q: Joseph O'Dea on furloughs and back half order expectations A: Furloughs temporary, in North America and China. Back half orders: modernization strong globally, New Equipment China expected to stabilize, Americas growth slow down, EMEA low mid-single-digit