Otis Worldwide Corporation Q1 FY2026 earnings call

Otis delivered a solid start to the year in orders and sales with continued demand momentum, especially in the service segment. Total organic sales increased 1% driven by organic service growth of 5%. Maintenance and repair sales increased 4% with repair sales up ~10%. Modernization orders were up 11% and backlog up 30% at constant currency. New equipment orders increased 1% at constant currency and 5% excluding China, backlog up 3% year-over-year at constant currency and 11% excluding China. Otis had strong cash flow performance with adjusted free cash flow of approximately $272 million, up 46% versus prior year. Dividend was increased 5%, and approximately $400 million of share repurchases were completed. There was a majority investment in WeMaintain, and the introduction of Otis Robust and Otis Viva Solutions. Highlights included projects in France, the Americas, and China. Otis redefined its service strategy to maximize lifetime value by investing in service excellence and addressing service margin issues through investments in growth, portfolio mix, and cost management. The market outlook was discussed with the global new equipment market expected to stabilize and the modernization market remaining robust.

Total organic sales increased 1% in the quarter, driven by organic service growth of 5%. Maintenance and repair sales increased 4%, with organic repair sales up approximately 10%. Modernization orders were up 11% in the quarter with the backlog up 30% at constant currency. New equipment orders increased 1% at constant currency and 5% excluding China, with backlog up 3% year-over-year at constant currency and 11% excluding China. Service organic sales grew 5%, with maintenance and repair organic sales increasing 4% (organic maintenance sales 2% and organic repair sales 10% ). Modernization organic sales grew 6%. New equipment organic sales declined 5%. Service operating profit was $556 million in the quarter, down $10 million at constant currency, with service operating margin contracting 160 basis points to 23%. New equipment operating profit was $38 million, down $27 million at constant currency, with new equipment operating margin declining 240 basis points to 3.3%.

Net sales are expected to be between $15.1 billion and $15.3 billion with organic sales growth in the low to mid-single digits. Adjusted operating profit is expected to be approximately $2.5 billion, up $20 to $60 million at constant currency and $60 to $100 million in actual currency. Adjusted EPS is expected to be $4.20 to $4.24. Adjusted free cash flow is anticipated to be between $1.6 billion and $1.65 billion. Service margin is expected to sequentially improve, and the results are expected to accelerate in the second half of the year as operational actions are executed.

The Middle East conflict could cause project delays, logistic interruptions, and increased costs, potentially negatively impacting profit by $5 to $10 million per quarter if it continues. There are portfolio mix headwinds with lower value market growth causing negative mix in maintenance, which has put short-term profit pressure on the service business.

Joe O'Day asked about the cadence of service margin expansion and maintenance growth trajectory. Rob Wertheimer followed up on service portfolio plan disappointment in 1Q. Jeff Sprague asked about WeMaintain and margins. Nigel Koh requested decomposition of service margin bridge. Louis Merrick inquired about service margin market vs self-inflicted factors. Alexander Virgo asked about repair business visibility. Julian Mitchell circled back on service margins. Nicole DeBlaze asked about service margin medium-term investments and Middle East impact. Patrick Bowman asked about new equipment margins and corporate expenses. Answers were provided by Judy Marks and Christina Mendez addressing these questions respectively.