Otis (OTIS) Q3 Earnings Beat, Modernization Orders Up 13%
Otis Worldwide Corporation OTIS reported impressive results in third-quarter 2023. Its earnings and net sales surpassed the Zacks Consensus Estimate and rose on a year-over-year basis. Its quarterly results reflected 12 consecutive quarters of organic sales growth and solid operating margin expansion, contributing to high-teens adjusted earnings per share (“EPS”) growth.
The company remains focused on strong portfolio growth and generating a solid New Equipment and Modernization backlog. It also intends to expand operating margins, return cash to shareholders through a capital-allocation strategy and pursue additional progress toward ESG goals.
Shares of this elevator and escalator manufacturing company declined 1.66% in the pre-market trading session on Oct 25.
Earnings & Revenue Discussion
The company reported quarterly earnings of 95 cents per share, surpassing the consensus estimate of 87 cents by 9.2% and increasing 18.8% from the year-ago quarter’s figure of 80 cents. The upside was mainly driven by operational improvement, a lower share count and effective tax rate improvement.
Otis Worldwide Corporation Price, Consensus and EPS Surprise
Otis Worldwide Corporation price-consensus-eps-surprise-chart | Otis Worldwide Corporation Quote
Net sales of $3.52 billion topped the consensus mark of $3.48 million by 1.2% and rose 5.4% on a year-over-year basis. Adjusted net sales grew 5.9% year over year. Organically, net sales rose 5.2% year over year for the quarter. Currency headwinds benefited sales by 0.6%.
Adjusted operating margin expanded 60 basis points (bps) to 16.9% from the year-ago period’s level, backed by the Service unit’s favorable performance and segment mix, partially offset by headwinds in corporate costs. Our model predicted the adjusted operating margin to expand 30 bps year over year to 16%.
Segment Details
New Equipment’s net sales of $1.44 billion fell 0.8%, but adjusted net sales remained stable from the prior-year period. A 1% increase in organic sales was partially offset by a 0.9% headwind from foreign exchange. Our model predicted organic sales for the New Equipment segment to grow 5.2% in the quarter.
New Equipment orders were down 10% at constant currency. Growth in EMEA and Asia Pacific was more than offset by softness in the Americas and China.
The New Equipment’s adjusted backlog at constant currency increased by 2% year over year.
Adjusted operating margin was flat year over year at 7.2%.
Service’s net sales increased 10.1% to $2.09 billion and adjusted revenues surged 10.3% year over year. An 8.4% rise in organic sales and an 8.4% benefit from foreign exchange helped the top line. Organic maintenance and repair sales grew 8.6% and organic modernization sales rose 7.6% from the prior-year quarter. Our model predicted organic sales for the Service segment to grow 6.6% in the quarter.
Modernization orders were up 13% at constant currency during the reported quarter. Modernization backlog at constant currency increased by 15% year over year.
Adjusted operating margin registered an improvement of 90 bps year over year to 24.8%, driven by higher volume, favorable pricing and productivity, partially offset by labor inflation and higher material costs.
Financial Position
Otis had cash and cash equivalents of $1.64 billion as of Sep 30, 2023. This compares unfavorably with the 2022-end figure of $1.19 billion. Long-term debt was $6.82 billion as of Sep 30, 2023, up from $6.1 billion at 2022-end.
Net cash flows provided by operating activities were $306 million for the September quarter, up from $239 million a year ago.
Free cash flow (“FCF”) totaled $272 million for the quarter, up from $215 million a year ago.
2023 Guidance Revised
For 2023, the company now expects adjusted net sales to be nearly $14.1 billion compared with $14-14.3 billion expected earlier. The new projection indicates approximately 4% versus 3.5-5.5% growth expected earlier. Organic sales growth is projected to be 5.5% (up 3% for New Equipment and up 7.5% for Service).
Adjusted operating profit is projected to be up $170 million at constant currency versus $155-$175 million expected earlier.
Adjusted EPS is now anticipated to be $3.52 versus $3.45-$3.50 expected earlier. The updated outlook suggests 11% year-over-year growth.
FCF is expected to be $1.5 billion.
Zacks Rank & Some Recent Construction Releases
Otis currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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