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Otis Worldwide Corp (OTIS)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 delivered clean beats and a guidance raise at the midpoint: revenue $3.69B (+4% YoY; +2% organic) and adjusted EPS $1.05 (+9% YoY), while GAAP EPS was $0.95 (–29% YoY due to prior-year non‑recurring tax items) . Versus S&P Global consensus, OTIS beat revenue by ~1.3% ($3.69B vs $3.64B*) and EPS by ~$0.05 ($1.05 vs $1.00*)*.
  • Results were service-led: Service net sales rose 9% to $2.43B with 6% organic growth and margin expansion of 70 bps to 25.5%; New Equipment fell 4% to $1.26B with margin compression of 170 bps to 4.7% on China and tariff headwinds .
  • Order book strengthened: Modernization orders +27% (backlog +22%); New Equipment orders +4% (ex‑China +7%); combined backlog healthy, positioning for continued conversion .
  • Guidance: OTIS raised/narrowed 2025 adjusted EPS to $4.04–$4.08 (from $4.00–$4.10) and reaffirmed adjusted FCF ≈$1.45B; expects ~1% organic sales growth with ~7% decline in New Equipment and ~5% growth in Service .
  • Potential stock reaction catalyst: clear EPS/revenue beat versus consensus* and raised EPS midpoint driven by service margin expansion and modernization momentum .

What Went Well and What Went Wrong

What Went Well

  • Service outperformance: Service net sales +9% to $2.433B (organic +6%) with margin up 70 bps to 25.5%, delivering record service margin since spin; modernization organic sales +14%; repair accelerating with line-of-sight to ~10% growth in Q4 .
  • Orders and backlog strength: Modernization orders +27% with backlog +22%; New Equipment orders +4% (ex‑China +7%), providing visibility for future growth .
  • Quotes underscoring confidence: “Our Service flywheel generated our highest organic sales growth and operating profit margin expansion this year… This…gives us confidence to increase the midpoint of our EPS outlook.” – Judy Marks, CEO . Management highlighted AI-enabled products (Compass Infinity AI dispatch; safety cameras in China) and strong project wins, supporting a technology‑led differentiation narrative .

What Went Wrong

  • New Equipment pressure: Net sales –4% with ~20% decline in China and high‑single digit decline in the Americas; segment margin compressed 170 bps to 4.7% on lower volume, price, tariffs and mix .
  • Cash conversion below historical: Q3 adjusted FCF $337M (–$44M YoY), with year-to-date conversion below OTIS’s 100% aspiration due to mix shift toward service and working capital dynamics; management still targets ~100% over time .
  • Customer retention still a multi‑quarter journey: Management acknowledged retention remains below historical ~94% and will take time to rebuild via service excellence and operational execution, implying near‑term incremental margin headwinds from recapture vs. retention .

Financial Results

Headline results by quarter (2025)

MetricQ1 2025Q2 2025Q3 2025
Revenue ($B)$3.350 $3.595 $3.690
GAAP EPS ($)$0.61 $0.99 $0.95
Adjusted EPS ($)$0.92 $1.05 $1.05
Adjusted Operating Margin (%)16.7% 17.0% 17.1%

YoY snapshot (Q3 2024 vs Q3 2025)

MetricQ3 2024Q3 2025
Revenue ($B)$3.548 $3.690
GAAP EPS ($)$1.34 $0.95
Adjusted EPS ($)$0.96 $1.05
Service Net Sales ($B)$2.239 $2.433
New Equipment Net Sales ($B)$1.309 $1.257
Service Segment Margin (%)24.8% 25.5%
New Equipment Segment Margin (%)6.4% 4.7%

Actual vs S&P Global consensus (Q3 2025)

MetricConsensusActualSurprise
Revenue ($B)$3.6426*$3.690 +$0.0474B (~+1.3%)
EPS ($)$1.003*$1.05 +$0.047 (~+4.7%)

Values marked with * retrieved from S&P Global.

Segment breakdown (Q3 2025 vs Q3 2024)

SegmentNet Sales Q3’24 ($M)Net Sales Q3’25 ($M)YoYSegment OP Margin Q3’24Segment OP Margin Q3’25Δ (bps)
Service2,239 2,433 +9%24.8% 25.5% +70
New Equipment1,309 1,257 –4%6.4% 4.7% –170

KPIs and cash

KPIQ3 2025
Maintenance portfolio units growth+4%
Modernization orders+27% (cc); backlog +22%
New Equipment orders+4% (cc); ex‑China +7%
New Equipment backlog–1% (cc); ex‑China +8%
Cash from Operations ($M)$374
Free Cash Flow ($M)$337
Adjusted Free Cash Flow ($M)$337 (Q3); $766 YTD
Share repurchases (YTD)≈$800M
Quarterly dividend$0.42/share (declared Oct 30, 2025)

Guidance Changes

MetricPeriodPrevious Guidance (Q2 2025 PR)Current Guidance (Q3 2025 PR)Change
Net SalesFY 2025$14.5–$14.6B, up 1–2% $14.5–$14.6B, up ~2% Maintained (minor wording)
Organic SalesFY 2025~+1% ~+1% Maintained
Organic New EquipmentFY 2025~–7% ~–7% Maintained
Organic ServiceFY 2025~+5% ~+5% Maintained
Adjusted Operating ProfitFY 2025Up $55–$105M at AFX; $50–$90M at CFX excl tariffs Up $75–$95M at AFX; $65–$85M at CFX excl ~($30)M tariffs Raised/narrowed range
Adjusted EPSFY 2025$4.00–$4.10 $4.04–$4.08 Midpoint raised, range narrowed
Adjusted Effective Tax RateFY 2025~24.8% ~24.8% Maintained
Adjusted Free Cash FlowFY 2025$1.4–$1.5B ≈$1.45B Reaffirmed midpoint
Tariff impact (CFX context)FY 2025($35)–($25)M ≈($30)M Clarified midpoint

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2025)Current Period (Q3 2025)Trend
Service growth & marginsQ1: Service organic +4%, margin +40 bps; Q2: Service organic +4%, margin +20 bps Service organic +6%, margin +70 bps to 25.5% (record since spin) Improving
Modernization cycleQ1: Mod orders +12%, backlog +13–14% Mod orders +27%, backlog +22% Accelerating
New Equipment demandQ1/Q2: China >20% down; Americas high‑single digit down; orders mixed (ex‑China growth) Orders +4% (ex‑China +7%); China still down mid‑single digits; backlog ex‑China +8% Stabilizing ex‑China; China moderating
China pricing & transformationQ2: NE margin pressure; restructuring savings underway China NE pricing ~–10% in Q3; in‑year China savings now ~$30M (>$20M YTD) with $40M run‑rate target Cost actions mitigating pricing
TariffsQ2 guide embedded tariff headwinds 2025 tariff impact ~($30)M; mostly pre‑2025 backlog; pricing/terms adjusted for new work Headwinds manageable
Technology/AILimited prior detail in PRsCompass Infinity AI dispatch; AI safety cameras in China mod projects Increasingly highlighted
End‑market mixQ2: Service-led resilience Data centers cited as a growth vertical; Middle East >20% growth in EMEA Positive mix support

Management Commentary

  • Strategic focus: “Our Service flywheel generated our highest organic sales growth and operating profit margin expansion this year… This…gives us confidence to increase the midpoint of our EPS outlook.” – Judy Marks, CEO .
  • Demand signals: “New equipment orders grew 4%, returning to growth for the first time since the fourth quarter of 2023… encouraging developments in the data center segment” – management .
  • Margin drivers and actions: Q3 new equipment margin benefited from “accelerated” China transformation savings (now ~$30M in‑year) and stronger shipments from the Florence (NA) factory; Q4 new equipment margins expected ~4% given seasonality and smaller segment scale .
  • Technology differentiation: Deployment of Compass Infinity AI dispatching (e.g., JPMorgan 270 Park) and AI‑enabled safety cameras in China bond-backed modernization projects highlight product/solution innovation .

Q&A Highlights

  • Retention and recapture: Management is investing in service excellence and staffing; retention improvement will be gradual from below ~94% historical levels; recapture carries lower incremental margins than pure retention .
  • Americas NE outlook: Improving demand in residential and infrastructure plus normalized site activity; five consecutive quarters of orders growth support near‑term revenue recovery .
  • Repair trajectory: Repair growth improved from +1% in Q1 to +6% in Q2, +7% in Q3, with line of sight to ≥10% in Q4; conversion of backlog accelerating with better parts/mechanic availability .
  • China dynamics: NE pricing pressure (~–10% in Q3) continues but sequential stabilization expected; modernization orders up >150% in China from bond stimulus with conversion into sales continuing .
  • Cash conversion: Year‑to‑date below historical ~100% due to mix shift and collections transition, but Q4 cash flow planned at last year’s level ($700M) with conversion >90% for 2025 and return toward ~100% in 2026 .

Estimates Context

  • Q3 2025 S&P Global consensus vs. actuals: Revenue $3,642.6M* (8 est.) vs. $3,690M actual (beat ~1.3%); EPS $1.003* (10 est.) vs. $1.05 actual (beat ~$0.05; ~4.7%)*. Values retrieved from S&P Global.
  • Trajectory context: Q1 2025 actual revenue $3,350M vs. $3,417.0M* est.; EPS $0.92 vs. $0.910*; Q2 2025 actual revenue $3,595M vs. $3,709.5M* est.; EPS $1.05 vs. $1.028* (beats on EPS in Q1–Q3; revenue beats mixed)* . Values retrieved from S&P Global.

Key Takeaways for Investors

  • Service engine is firmly in gear: record service margins, accelerating repair, and double‑digit modernization growth provide high‑visibility earnings and cash flows despite NE headwinds .
  • Beat and raise: Q3 beat on revenue and EPS versus S&P Global consensus* and a raised/narrowed FY EPS outlook should support confidence into Q4 and FY close .
  • China pressures manageable: NE pricing down, but transformation savings (~$30M in‑year) and modernization stimulus are mitigating and shifting mix to higher‑quality service revenues .
  • Backlog and orders position 2026: NE orders turned positive (+4%; ex‑China +7%) and mod backlog +22% underpin revenue conversion into 2026, with management signaling continued EPS growth beyond 2025 .
  • Cash conversion set to rebound in Q4: management targets ~>$700M Q4 cash, ~>90% full‑year conversion, progressing back toward ~100% in 2026, aided by NE and mod advances and collections normalization .
  • Capital returns continue: ~$800M YTD buybacks and a $0.42 quarterly dividend underpin shareholder returns while bolt‑on M&A builds service density and capabilities .
  • Watch list: tariff cadence, China NE pricing, pace of retention improvements, and execution on modernization conversion and China savings are the near‑term swing factors .

Appendix: Additional Details and Non‑GAAP Context

  • GAAP vs. non‑GAAP: YoY GAAP comparisons reflect non‑recurring tax items and related interest income in 2024; Q3 2025 adjusted operating margin 17.1% (+20 bps) vs. GAAP margin 15.9% (+570 bps) . Non‑GAAP definitions and reconciliations are provided in OTIS’s materials .
  • Cash flow bridge (Q3): CFO $374M; FCF $337M; adjusted FCF $337M (adjustments include UpLift/transformation payments, separation‑related payments, and German tax refunds) .
  • Balance sheet (9/30/25): Cash & equivalents $840M; LT debt $7.592B .

Values marked with * retrieved from S&P Global.