Skip to content
    OTIS
    Earnings call· Mar 2025(Q1 FY25)

    Otis Worldwide Q1 FY25 earnings call OTIS

    Apr 23, 2025 Source

    Executive summary

    Otis Q1 FY25 — Service-Driven Growth and Margin Expansion

    Otis delivered solid Q1 FY25 results, driven by the resilience of its Service business, which saw strong organic sales and margin expansion. While New Equipment faced headwinds, particularly in China, the company is executing a strategic shift towards a more Service-driven model, adapting its cost structure, and mitigating tariff impacts. Management remains confident in its full-year profit and EPS growth outlook, expecting acceleration in the second half.

    Highlights

    5

    • Adjusted operating profit margins expanded 40 basis points to 16.7%.

    • Adjusted EPS grew 5% in the quarter.

    • Service organic sales grew 4% across all business lines.

    • Modernization orders increased 12% and backlog was up 14% at constant currency.

    • Maintenance portfolio grew 4%.

    Concerns

    5

    • New Equipment organic sales declined 7%.

    • New Equipment orders declined 1%, with China orders down greater than 20%.

    • Anticipated negative impact of approximately $45 million to $75 million to operating profit in 2025 from incremental U.S. tariffs.

    • Americas New Equipment outlook reduced to down mid-single digits due to project delays.

    • Service organic sales outlook expanded at the low end due to softer-than-expected repair execution in Q1.

    Guidance & targets

    26
    CategoryTargetConfidence
    Global New Equipment units
    decline mid-single digits
    high materiality
    High
    Americas New Equipment market outlook
    down low single digits
    medium materiality
    Medium
    EMEA New Equipment market outlook
    low single-digit growth
    medium materiality
    High
    Asia New Equipment market outlook
    decline mid- to high single digits
    medium materiality
    High
    Asia Pacific New Equipment market outlook
    mid-single-digit growth
    low materiality
    High
    China New Equipment market outlook
    approximately 10% decline
    high materiality
    High
    Global installed base units
    approximately 23 million units
    medium materiality
    High
    Net sales
    $14.6B to $14.8B
    high materiality
    High
    Adjusted operating profit
    $2.4B to $2.5B
    high materiality
    High
    Tariff impact on operating profit
    negative $45M to $75M
    high materiality
    High
    Adjusted free cash flow
    approximately $1.6B
    high materiality
    High
    Share repurchases
    $800M
    high materiality
    High
    Organic sales growth
    2% to 4%
    high materiality
    High
    New Equipment organic sales growth
    down 1% to 4%
    high materiality
    High
    Americas New Equipment organic sales
    decline mid-single digits
    medium materiality
    Medium
    EMEA New Equipment organic sales
    grow mid-single digits
    medium materiality
    High
    Asia New Equipment organic sales
    decline mid-single digits
    medium materiality
    High
    Service organic sales
    increase 5% to 7%
    high materiality
    High
    Modernization organic sales
    grow low teens
    medium materiality
    High
    UpLift & China transformation in-year savings
    $90M
    medium materiality
    High
    UpLift & China transformation annual run rate savings
    $230M
    medium materiality
    High
    Adjusted operating profit growth (actual currency, incl. tariffs)
    $55M to $105M
    high materiality
    High
    Adjusted operating profit margin expansion (ex-tariffs)
    50 bps
    high materiality
    High
    Adjusted operating profit margin expansion (incl. tariffs)
    10 bps
    high materiality
    High
    Adjusted EPS
    $4.00 to $4.10
    high materiality
    High
    Adjusted EPS growth cadence
    flat H1 YoY, stronger H2
    medium materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Service
    Driven by portfolio growth and positive pricing, partially offset by mix and churn. Repair growth was muted in Q1 due to timing of backlog execution, expected to accelerate in the balance of the year. Operating profit increased $29 million at constant currency.
    Maintenance and repair organic sales: 3%Modernization organic sales: 10%Maintenance portfolio growth: 4%Maintenance pricing: 2%
    		$2.18B4% organic—24.6%
    New Equipment
    Strength in EMEA and APAC offset by declines in China and Americas. Headwinds from lower volume and regional mix partially offset by productivity, benefits from UpLift on China transformation, and lower commodity costs. Pricing was relatively flat. Operating profit declined $4 million at constant currency.
    EMEA sales growth: mid-single digitsAPAC sales growth: approximately 10%Americas sales decline: high single digitsChina organic sales decline: greater than 20%
    		$1.16Bdeclined 7% organic—5.7%

    Operational metrics

    41
    Adjusted operating profit margin expansion
    40YoY
    Q1 FY25

    Company-wide adjusted operating profit margin expansion.

    Adjusted EPS growth
    5YoY
    Q1 FY25

    Driven by solid operational performance and lower share count.

    Share repurchases
    $250M
    Q1 FY25

    Amount of share repurchases completed in the quarter.

    Dividend increase
    8YoY
    Q1 FY25

    Announced dividend increase.

    New Equipment orders growth
    -1YoY
    Q1 FY25

    Company-wide New Equipment orders performance.

    Americas New Equipment orders growth
    mid-teensYoY
    Q1 FY25

    Strong orders performance in the Americas region.

    Asia Pacific New Equipment orders growth
    greater than 20YoY
    Q1 FY25

    Robust demand in Asia Pacific.

    China New Equipment orders growth
    declined greater than 20YoY
    Q1 FY25

    Continued weakness in China, in line with expectations.

    EMEA New Equipment orders growth
    down mid-single digitsYoY
    Q1 FY25

    Partially due to a tough compare.

    Modernization orders growth
    12YoY
    Q1 FY25

    Widespread order growth, with China as a notable standout.

    China Modernization orders growth
    greater than 20YoY
    Q1 FY25

    Significant growth in China, early in a projected multiyear cycle.

    Service portfolio growth
    4YoY
    Q1 FY25

    Growth across all regions.

    Adjusted operating profit FX headwind
    $16M
    Q1 FY25

    Negative impact from foreign exchange rates.

    Adjusted operating profit increase (constant currency)
    $29MYoY
    Q1 FY25

    Increase in Service segment operating profit.

    Adjusted operating profit decline (constant currency)
    $4MYoY
    Q1 FY25

    Decline in New Equipment segment operating profit.

    Adjusted operating profit decline (actual currency)
    $5MYoY
    Q1 FY25

    Decline in New Equipment segment operating profit.

    Global installed base units (year-end)
    22M
    FY24

    Global installed base at the end of the prior fiscal year.

    Adjusted operating profit growth (constant currency, ex-tariffs)
    $105M to $135MYoY
    FY25

    Expected full-year growth in adjusted operating profit, excluding tariff impact.

    Adjusted EPS operational growth contribution
    $0.24
    FY25

    Contribution to adjusted EPS growth from operational performance.

    Adjusted EPS FX tailwind contribution
    $0.05
    FY25

    Contribution to adjusted EPS growth from foreign exchange rates.

    Adjusted EPS share count & interest benefit contribution
    $0.05
    FY25

    Net benefit to adjusted EPS from lower share count and higher interest.

    Adjusted EPS tariff impact
    -$0.12
    FY25

    Negative impact to adjusted EPS from incremental 2025 tariffs.

    China material purchases (for US)
    $100M
    annual

    Annual material purchases from China for U.S. operations.

    Annualized tariff impact (China purchases)
    $90M
    annual

    Annualized impact from tariffs on China purchases.

    Reciprocal tariff rate
    125on top of original 20%
    current

    Tariff rate for certain imports from China.

    Section 232 tariff rate
    25on top of 20%
    current

    Tariff rate for steel and aluminum imports from China.

    Annualized tariff impact (rest of world)
    $10M
    annual

    Annualized tariff impact from rest of the world purchases (currently 10%).

    Total annualized tariff impact (gross)
    $100M
    annual

    Total gross annualized tariff impact before mitigation.

    In-year 2025 tariff impact (point estimate)
    $60M
    FY25

    Point estimate for the net tariff impact in the current fiscal year.

    China market decline
    15YoY
    Q1 FY25

    Decline in the China New Equipment market.

    China market decline (prior quarter)
    20YoY
    Q4 FY24

    Decline in the China New Equipment market in the previous quarter.

    China market decline (expected)
    15YoY
    Q2 FY25

    Expected decline in the China New Equipment market for the next quarter.

    China market decline (expected)
    10YoY
    H2 FY25

    Expected decline in the China New Equipment market for the second half of the year.

    Maintenance pricing effect
    2positive
    Q1 FY25

    Price effect in maintenance, moderating due to softer inflation.

    North America New Equipment market decline
    9YoY
    Q1 FY25

    Market decline in North America.

    China revenue as % of Otis total revenue
    10down from 13% at year-end
    Q1 FY25

    Reflects strategic shift away from New Equipment dependence in China.

    Service revenue as % of China revenue
    40up from 33% at year-end
    Q1 FY25

    Indicates increasing focus on Service business in China.

    New Equipment China as % of total New Equipment
    17down from 24% at year-end
    Q1 FY25

    Reflects reduced dependence on New Equipment in China.

    One-time tax case adjustment
    -$52M
    Q1 FY25

    Adjustment to GAAP operating profit for a tax case. In Q3 FY24, a $200M positive in interest, $180M positive in tax receivables, and a negative $194M related to RTX indemnification were recognized.

    One-time legal and settlement costs
    $21M
    Q1 FY25

    Costs from a few large cases settled in the quarter.

    One-time held-for-sale impairment
    $10M
    Q1 FY25

    Impairment linked to a provision booked in Q3 FY24 for a non-U.S. subsidiary classified as held-for-sale.

    Industry KPIs

    3
    MetricValueDetails
    Tariff cost impactnegative $45M to $75MUSD
    Order backlog order intake by segment2% combined orders growth%
    Industry production market size forecastsdecline mid-single digits%

    Orderbook & backlog

    6
    Modernization backlogup 14%Q1 FY25 end

    YoY at constant currency

    Combined (New Equipment and Modernization) backlogrelatively flatQ1 FY25 end

    sequential improvement from Q4

    Total backlog (including Maintenance and Repair)historically high levelsQ1 FY25 end

    Positions well for future quarters.

    New Equipment backlogdown 3%Q1 FY25 end

    YoY at constant currency

    New Equipment backlog (excluding China)up mid-single digitsQ1 FY25 end

    YoY

    Repair backlogup 5%Q1 FY25 end

    YoY

    Good line of sight for conversion.

    Product announcements

    4
    ProductTypeDetails
    Christ the Redeemer Elevator Modernizationupdate
    Arlanda Express Escalator Modernizationupdate
    Hangzhou Metro Line 3 Escalators and Elevatorslaunch
    Prestige Group India Contractlaunch

    Deals & partnerships

    2
    Hangzhou MetroSupply of escalators and IoT-connected elevators for new Line 3.

    Otis selected to supply 145 escalators and 26 IoT-connected elevators for Hangzhou Metro Line 3.

    Prestige groupSupply of elevators and escalators across 5 major cities in India.

    Secured a landmark contract to supply over 470 elevators and escalators.

    Risks & headwinds

    5
    Decline in New Equipment orders in ChinaQ1 FY25, expected to stabilize later in FY25

    greater than 20% decline in Q1 FY25

    Mitigation: Strategic shift to Service-driven model, cost structure adaptation, balancing value, price and New Equipment units for Service stickiness.

    Incremental U.S. tariffs on products/components from ChinaFY25

    negative $45M to $75M impact on operating profit in FY25

    Mitigation: Customer and supply chain negotiations, supply chain shifts to more favorable sources, adjusted contract terms and pricing for new orders, global manufacturing flexibility to shift production.

    Project delays in Americas New Equipment due to global trade policies uncertaintyFY25

    Americas New Equipment market outlook reduced to down mid-single digits for FY25

    Mitigation: Focus on share gains, strong backlog execution, focus on modernization orders, controlling controllable factors.

    Softer-than-expected repair executionQ1 FY25, expected to reaccelerate in balance of year

    Service organic sales outlook expanded at the low end for FY25

    Mitigation: Investment in Service excellence to improve retention rates, focus on converting repair backlog (up 5%).

    Macroeconomic uncertaintyFY25

    General

    Mitigation: Leveraging resilient Service-driven business model, executing cost transformation initiatives (UpLift and China transformation).

    What to watch in Q2 FY25

    5

    Repair sales reacceleration

    Q2 FY25
    Currentmuted in Q1
    Targetacceleration in Q2

    Why it matters

    Repair sales are a key component of Service revenue, and their reacceleration is crucial for achieving full-year Service growth targets and overall profitability.

    Repair growth was muted in the first quarter, up low single digits, due to timing of📎 backlog execution. We expect acceleration in the balance of the year.

    Q&A highlights

    8

    Clarification on the gross vs. net tariff impact, specifically the $90 million figure.

    Management explained that $100 million in annual material purchases from China for the U.S. results in a $90 million annual tariff impact due to the mix of 232 and reciprocal tariffs. The in-year 2025 estimate is $60 million, which includes some mitigation efforts, with further mitigation expected as new orders are priced.

    “So $100 million is annual purchases from China. The annual impact from tariffs coming from those purchases is $90 million on an annual basis. This is because of the mix of 232 that has lower rate versus reciprocal that has higher rate. Full year will be $100 million. Our point estimate for in-year 2025 is $60 million.”

    asked by Jeff Sprague · answered by Cristina Mendez

    2 min read5 chapters

    Detailed Narrative

    01

    Five-Year Anniversary and Achievements

    Otis celebrated its fifth anniversary as an independent public company, highlighting significant achievements since its spin-off. Over the past five years, the company expanded adjusted operating profit margins by 220 basis points, grew adjusted EPS over 70%, more than doubled its dividend, and returned $6 billion of capital to shareholders through dividends and share repurchases. These accomplishments reflect the resilience of the business and the commitment of its colleagues.

    02

    Global Market Outlook and Installed Base Growth

    The company maintains its expectation for global New Equipment units to decline mid-single digits in FY25, with stabilization in China expected later in the year. The global installed base grew mid-single digits to 22 million units at year-end FY24 and is anticipated to reach approximately 23 million units by the end of FY25. This growing installed base provides strong visibility and opportunity for future Service growth, which is a core component of Otis's strategy.

    03

    Strategic Shift in China

    Otis is undergoing a significant strategic shift in China, aiming to become a more Service-driven business and treating it as a mature market. China's contribution to Otis' total revenue decreased from 13% at year-end FY24 to 10% in Q1 FY25, while Service revenue within China increased from approximately 33% to 40% over the same period. New Equipment business in China now represents 17% of total New Equipment, down from 24% at year-end FY24, reflecting the successful execution of this strategy despite a challenging market.

    04

    UpLift and China Transformation Initiatives

    The company is on track with its UpLift program and China transformation, which are driving process efficiencies and enabling the field organization to better focus on serving customers. These initiatives are expected to deliver $90 million in-year savings for FY25 and $230 million in annual run-rate savings by year-end. These programs are positioning Otis with a competitive cost structure and are expected to drive sustainable earnings growth.

    05

    Recognition and Project Highlights

    Otis was recognized by Fortune as one of the World's Most Admired Companies and named to Wall Street Journal's Best-Managed Companies list. Key projects include the modernization of 3 elevators at Christ the Redeemer in Rio de Janeiro, 29 escalators for Stockholm's Arlanda Express, supplying 145 escalators and 26 IoT-connected elevators for Hangzhou Metro Line 3, and a landmark contract for over 470 elevators and escalators for the Prestige group in India, including double-deck and high-speed elevators for India's tallest commercial tower.

    AI-generated summary of the company’s earnings call. Not investment advice.