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Otis Worldwide (OTIS) Up 4.4% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Otis Worldwide (OTIS). Shares have added about 4.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Otis Worldwide due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Otis Worldwide Q3 Earnings & Sales Beat

Otis Worldwide Corporation reported solid results for third-quarter 2021. Its earnings and revenues surpassed the respective Zacks Consensus Estimate as well as improved on a year-over-year basis. Solid organic sales in both New Equipment and Service segments along with higher operating margins benefited the company.

President & CEO of Otis, Judy Marks, said, "We continue to advance our strategy, progress on ESG initiatives and achieve strong results, despite the macro environment, reflecting the resiliency of the business and our ability to execute. This gives us the confidence to improve the 2021 outlook and positions us well to build on this momentum in 2022."

Earnings & Revenue Discussion

The company reported quarterly earnings of 77 cents per share, which surpassed the consensus estimate of 73 cents by 5.5% and grew 11.6% from the year-ago figure of 69 cents.

Net sales of $3.62 billion topped the consensus mark of $3.56 million by 1.8% and improved 10.8% on a year-over-year basis backed by solid segmental results. Organically, net sales grew 8.1% for the quarter.

Adjusted operating margin expanded 20 basis points (bps) to 15.6%, with margin expansion in both New Equipment and Service.

Segment Details

New Equipment’s revenues of $1.68 billion increased 18.1% from the prior-year period backed by 14.1% organic growth. Organic sales were up in mid-teens in the Americas, low-single digits in EMEA and high-teens in Asia. China organic sales were up in double digits. New Equipment orders were up 3.8% at constant currency.

Adjusted operating margin registered an improvement of 80 bps year over year to 8% backed by higher volume. New equipment backlog increased 4% and 1% at constant currency from the prior year.

Service revenues improved 5.1% year over year to $1.94 billion backed by a 3.6% rise in organic sales. Organic maintenance and repair sales grew 4.7% but organic modernization sales fell 1.2% from the prior-year quarter. Adjusted operating margin registered an improvement of 30 bps year over year to 23.2%.

Financial Position

Otis had cash and cash equivalents of $1.55 billion as of Sep 30, 2021. This compares unfavorably with 2020-end numbers of $1.78 billion. Long-term debt was $5.46 million as of Sep 30, 2021, up from $5.26 million at 2020-end.

Net cash flows provided by operating activities were $355 million for the third quarter, up from $348 million a year ago. Free cash flow totaled $324 million, up from $311 million a year ago.

2021 Guidance Raised

For 2021, the company now expects net sales to be $14.3 billion, indicating an increase of 11.8-12.3% year over year. It earlier expected sales between $14.1 and $14.2 billion for the year. Organic sales growth is now likely to be 8.5-9% (15-15.5% for New Equipment and 4% for Service) versus 7.5-8% expected earlier. Adjusted operating profit is projected within $2.18-$2.19 billion versus $2.16-$2.18 billion of earlier prediction.

Adjusted earnings are now anticipated to be $2.95, up from the earlier view of $2.89-$2.93. The revised earnings expectation indicates 17% year-over-year growth. Adjusted effective tax rate is likely to be 28.5-29% versus 29% expected earlier. Free cash flow now is expected between $1.5 and 1.55 billion versus $1.45-$1.5 billion projected earlier.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, Otis Worldwide has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Otis Worldwide has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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