Why Is Otis Worldwide (OTIS) Up 4.3% Since Last Earnings Report?

It has been about a month since the last earnings report for Otis Worldwide (OTIS). Shares have added about 4.3% 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 Beats on Earnings in Q1, Increases Dividend

Otis Worldwide Corporation reported strong results in first-quarter 2022. Its earnings surpassed the Zacks Consensus Estimate and improved on a year-over-year basis. Sales also improved from the year-ago figure but marginally lagged the consensus mark.

President & CEO of Otis, Judy Marks, stated, "In addition, year-to-date, we have made progress on our capital allocation strategy by successfully increasing our ownership in Zardoya Otis that will result in its automatic delisting in early May, repaying $500 million of debt and returning cash to shareholders through $200 million in share repurchases and a more than 20% increase in our dividend.” She added, “Looking ahead, despite the intensifying macro challenges, including the impact from the crisis in Ukraine, we expect to achieve 3 to 4% organic sales growth and 10% adjusted EPS growth at the midpoint."

On Apr 24, the company announced a quarterly dividend hike of 20.8% to 29 cents per share. The dividend will be payable on Jun 10, 2022, to shareholders of record at the close of business on May 20. The company currently has a dividend payout of 32% and a dividend yield of 1.31%, based on the closing share price of $73.42 on Apr 22. The recent move represents 45% dividend growth since it has become a public company.

Earnings & Revenue Discussion

The company reported quarterly earnings of 77 cents per share, which surpassed the consensus estimate of 75 cents by 2.7% and increased 6.9% from the year-ago figure of 72 cents. The upside was mainly driven by operating profit growth, a reduction in share count and a lower effective tax rate.

Net sales of $3.41 billion marginally missed the consensus mark of $3.43 million but improved 0.2% on a year-over-year basis. Organically, net sales grew 3.1% year over year for the quarter.

Adjusted operating margin expanded 30 basis points (bps) to 15.9% from the year-ago period, with margin expansion in Service.

Segment Details

New Equipment’s adjusted revenues of $1.42 billion dropped 2.5% from the prior-year period’s levels, due to a 0.5% decline in organic sales. Organic sales were up in mid-single-digit in EMEA and low-single-digit in the Asia Pacific, which was more than offset by declines in the Americas and China. New Equipment orders were up 8.8% at constant currency, backed by growth across the regions. New equipment backlog also increased 6% at constant currency from the prior year.

Adjusted operating margin contracted 70 bps year over year to 6.8% due to commodity headwinds and lower volume.

Service adjusted revenues improved 2.2% year over year to $1.99 billion, backed by a 5.8% rise in organic sales. Organic maintenance and repair sales grew 5.8%, and organic modernization sales rose 6.9% from the prior-year quarter. Adjusted operating margin registered an improvement of 30 bps year over year to 22.9%, driven by higher volume, favorable pricing and productivity, partially offset by labor inflation.

Financial Position

Otis had cash and cash equivalents of $1.24 billion at first-quarter 2022-end compared with $1.57 billion as of Dec 31, 2021. Long-term debt was $6.69 billion as of Dec 31, 2021, down from $7.25 billion in 2021-end.

Net cash flows provided by operating activities were $504 million for the first quarter, down from $585 million a year ago. Free cash flow totaled $474 million for the quarter, down from $541 million a year ago.

2022 Guidance (Excluding Russia)

For 2022, the company expects adjusted net sales to be within $14.1-$14.3 billion, indicating a 0.5-1.5% year-over-year increase. Organic sales growth is likely to be 3-4% (flat to up 1.5% for New Equipment and 5-6% for Service). Adjusted operating profit is projected within $2.2-$2.25 billion, up $40-$90 million in actual currency and $105-$155 million at constant currency.

Adjusted earnings per share are anticipated to be $3.22-$3.27, suggesting 9-11% year-over-year growth. The adjusted effective tax rate is likely to be 27.7%. Free cash flow now is expected to be nearly $1.6 billion.

 

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

Currently, Otis Worldwide has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

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

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision has been net zero. 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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