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Otis Worldwide Corp (OTIS)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered resilient Service-led performance: net sales $3.35B, adjusted EPS $0.92, GAAP EPS $0.61; adjusted operating margin expanded to 16.7% while GAAP margin contracted to 12.3% due to UpLift and separation-related items .
  • Relative to consensus, OTIS posted an EPS beat and revenue miss: adjusted EPS $0.92 vs $0.91*, revenue $3.35B vs $3.42B*; Service drove strength while New Equipment softness in China persisted .
  • Guidance raised on net sales to $14.6–$14.8B (from $14.1–$14.4B), with adjusted EPS unchanged at $4.00–$4.10; management introduced a $45–$75M tariff headwind to 2025 operating profit, largely contained within New Equipment and offset partly by FX .
  • Modernization momentum accelerated (orders +12%; backlog +13%, +14% CFX) and maintenance portfolio units grew 4%; board increased the quarterly dividend 8% to $0.42—a continuing capital return catalyst alongside ~$250M buybacks in Q1 .

What Went Well and What Went Wrong

What Went Well

  • Service outperformed: organic sales +4% with maintenance/repair +3% and modernization +10%; segment margin expanded 40 bps to 24.6% on volume, pricing and productivity .
  • Modernization pipeline strengthened: orders +12% and backlog +13% (+14% CFX), positioning OTIS for multi-year execution benefits across regions .
  • Management reinforced strategic execution and capital allocation: “solid performance supported by the strength of our Service segment… dividend increase for the fifth consecutive year” — Judy Marks .

What Went Wrong

  • New Equipment weakness persisted: net sales down 9% YoY, with >20% decline in China and high-single-digit decline in the Americas; segment margin only 5.7% despite cost actions .
  • GAAP metrics pressured by one-time items: GAAP EPS fell 29% and GAAP operating margin contracted 350 bps, driven by UpLift transformation costs, separation adjustments, and litigation-related items .
  • 2025 tariff headwind introduced: expected negative impact of ~$45–$75M to operating profit, largely tied to China-sourced components and lower-volume imports into the U.S.; mitigation underway but cadence uneven through the year .

Financial Results

Headline Results vs Prior Quarters

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Billions)$3.55 $3.68 $3.35
GAAP EPS ($)$1.34 $0.84 $0.61
Adjusted EPS ($)$0.96 $0.93 $0.92
GAAP Operating Margin (%)10.2% 14.4% 12.3%
Adjusted Operating Margin (%)16.9% 15.9% 16.7%

Segment Breakdown

SegmentQ3 2024 Net Sales ($USD Billions)Q3 2024 Margin (%)Q4 2024 Net Sales ($USD Billions)Q4 2024 Margin (%)Q1 2025 Net Sales ($USD Billions)Q1 2025 Margin (%)
Service$2.239 24.8% $2.318 24.5% $2.187 24.6%
New Equipment$1.309 6.4% $1.357 4.7% $1.163 5.7%

KPIs and Cash Flow

KPIQ3 2024Q4 2024Q1 2025
Maintenance Portfolio Units Growth (%)4.2% YTD 4.2% FY 4%
Modernization Orders YoY (%)3% 18% 12%
Modernization Backlog YoY (%)14% 10% (13% CFX) 13% (14% CFX)
New Equipment Orders (CFX) YoY (%)-3% -4% -1%
New Equipment Backlog (CFX) YoY (%)-3% -4% -3%
Cash Flow from Operations ($USD Millions)$394 $690 $190
Free Cash Flow ($USD Millions)$362 $651 $156
Adjusted Free Cash Flow ($USD Millions)$381 $682 $186
Share Repurchases ($USD Millions)$200 $200 ~$250
Quarterly Dividend ($/share)$0.39 (prior) $0.39 $0.42 (announced Apr 22)

Q1 2025 vs Wall Street Consensus

MetricActualConsensusResult vs Consensus
Adjusted EPS ($)$0.92 $0.91*Beat
Revenue ($USD Billions)$3.35 $3.42*Miss

Values marked with * retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales ($USD Billions)FY 2025$14.1–$14.4 $14.6–$14.8 Raised
Organic Sales Growth (%)FY 2025+2% to +4% +2% to +4% Maintained
Organic New Equipment Sales (%)FY 2025-1% to -4% -1% to -4% Maintained
Organic Service Sales (%)FY 2025+6% to +7% +5% to +7% (low end widened) Lowered low end
Adjusted Operating Profit ($USD Billions)FY 2025$2.4–$2.5; up $120–$150M CFX; up $55–$105M actual $2.4–$2.5; up $105–$135M CFX excluding tariffs; up $55–$105M actual including tariffs Framed for tariffs (narrowed CFX)
Adjusted EPS ($)FY 2025$4.00–$4.10 $4.00–$4.10 Maintained
Adjusted Effective Tax Rate (%)FY 2025~24.8% ~24.8% Maintained
Adjusted Free Cash Flow ($USD Billions)FY 2025~$1.6 ~$1.6 Maintained
Share Repurchases ($USD Millions)FY 2025~$800 ~$800 (Q1 completed ~$250) Maintained
Dividend ($/share per quarter)2025$0.39 (Q1) $0.42 (from Q2) Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024, Q4 2024)Current Period (Q1 2025)Trend
Tariffs/MacroNo 2025 tariff impact discussed in Q3/Q4 releases Introduced 2025 tariff headwind of ~$45–$75M OP, largely NE; mitigation via pricing, sourcing and customer negotiations Emerging headwind (temporary)
Modernization CycleMod orders +3%, backlog +14% (Q3); +18% orders, backlog +10% (Q4) Orders +12%; backlog +13% (+14% CFX); low-teens growth guided Strengthening
China Market>20% NE decline; pricing pressure (Q3/Q4) China NE down >20%; pricing down ~6% YoY; strategy price-cost neutral; market expected down ~15% H1, improving in H2 Stabilizing later 2025
Americas New EquipmentQ4 showed NE softness and backlog working through Project delays amid trade-policy uncertainty; strong orders share despite market down 9%; mod sales Americas expected up low-teens in 2025 Mixed near-term; mod offset
Service Repair/RetentionService margins strong; portfolio growth 4.2% (Q3/Q4) Repair backlog up 5%; refocus on service excellence to lift retention; 2% price in maintenance; repair growth accelerates through year Improving execution
FXFX tailwinds in 2025 outlook (raised sales) FX offsets tariffs at actual currency; sales guide raised partly on FX Supportive

Management Commentary

  • Strategic posture: “Otis delivered solid performance supported by the strength of our Service segment… We also grew our industry leading maintenance portfolio 4% again this quarter” — Judy Marks .
  • Tariffs: “If tariffs on our Chinese imports continue… we expect a negative impact of approximately $45M to $75M to our operating profit in 2025… exposure primarily through existing backlog… we have adjusted contract terms and pricing on new orders” — Judy Marks .
  • Service focus: “Service operating profit… margins expanded 40 bps to 24.6%… uplift and productivity more than offsetting higher labor and material costs” — Cristina Méndez .
  • Repair execution and retention: “We refocused on service excellence… repair backlog is up 5%… revenue on repair and backlog conversion will step up every quarter” — Judy Marks .
  • China pricing discipline: “Price in China was down 6%… strategy for China new equipment this year is price-cost neutral” — Cristina Méndez .
  • Cost programs: “Target $90M in-year savings in 2025 and $230M annual run-rate by year-end from UpLift and China transformation” — Cristina Méndez .

Q&A Highlights

  • Tariff quantification/mitigation: Annualized impact ~$100M gross (incl. RoW), in-year 2025 point estimate ~$60M after mitigations; de minimis Q1 impact with uneven quarterly cadence; contractual repricing on backlog limited but ongoing negotiations .
  • Margin trajectory: Company-level margin expansion +10 bps including tariffs; +50 bps ex-tariffs; NE margins face China backlog headwinds; Service margins continue gradual expansion .
  • Americas NE dynamics: Market down ~9% in Q1; OTIS gained share (orders up mid-teens); ABI weakness cited; mod sales Americas expected up low-teens .
  • China stabilization: Market down ~15% Q1/Q2, improving in H2; China revenue mix shifting to Service (40% of China revenue in Q1) .
  • One-time GAAP items: ~$80M in Q1 related to German tax case true-up ($52M), legal settlements ($21M), held-for-sale impairment ($10M), plus ~$66M restructuring/transformation costs .

Estimates Context

  • Q1 2025 adjusted EPS $0.92 vs consensus $0.91* — beat; revenue $3.35B vs $3.42B* — miss. The EPS beat reflects Service margin expansion and lower share count; the revenue miss reflects NE weakness in China and slower repair execution early in the quarter .
  • Outlook implies potential estimate revisions: modest top-line uplift from FX, stronger mod execution later in the year, but tariff headwinds dampen reported margin expansion; expect Street to fine-tune NE margin assumptions and 2H cadence given management’s bridge and mitigation plan .

Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Service-led resilience continues: margin expansion and portfolio growth underpin consistent EPS delivery; prioritize valuation on Service cash generation and mod backlog conversion .
  • Tariffs are a manageable, mostly temporary NE headwind; mitigation and FX tailwinds offset much of 2025 impact at the consolidated level .
  • Modernization is a multi-year growth engine (orders/backlog up double-digit); execution should drive 2H sales and profit cadence, supporting the unchanged $4.00–$4.10 adjusted EPS guide .
  • China strategy pivot toward Service is advancing (mix shift, disciplined pricing), reducing dependency on lower-margin NE volume amid market pressure .
  • Americas NE near-term risk from project delays, but share gains and strong mod pipeline offer offsets; watch ABI/trade-policy developments for timing .
  • Capital returns remain robust: dividend raised 8% to $0.42 and $800M buyback target reiterated; Q1 repurchases ~$250M .
  • Near-term trading: stock reaction likely tied to tariff headlines and revenue miss vs consensus, but narrative support from Service margins, raised sales guidance, and dividend increase provides constructive medium-term setup .