Skip to content
    OTIS
    Earnings call· Jun 2026(Q2 FY26)

    Otis Worldwide Corp OTIS

    Jul 22, 2026 Source

    Executive summary

    Otis Q2 FY26 — Strong Service Growth and Backlog Expansion Offset by Productivity Headwinds

    Otis delivered solid Q2 FY26 results with strong organic sales growth, particularly in its Service segment, driven by robust modernization and repair. However, profitability was impacted by strategic investments in service quality, higher labor and material costs, and slower-than-expected retention improvement, leading to a tempered full-year outlook. The company is focused on operational initiatives to address these headwinds and capitalize on its growing backlog.

    Highlights

    5

    • Organic sales grew 6% in Q2 FY26.

    • Service organic sales increased 9%, driven by 24% modernization growth and 12% repair growth.

    • Modernization orders were up 9%, with backlog increasing 26% at constant currency.

    • Adjusted free cash flow reached $290 million, up 19% year-over-year.

    • Americas New Equipment sales increased 10%, with double-digit orders growth.

    Concerns

    7

    • Adjusted operating profit decreased $32 million, with operating margin declining 180 basis points to 15.2%.

    • Adjusted EPS declined 4% or $0.04 in the quarter.

    • Service operating margin was 23.2%, down 170 basis points, impacted by labor/material costs, productivity, and strategic investments.

    • New Equipment organic sales declined 1%, and operating profit decreased $30 million, with margin down 220 basis points to 3.1%.

    • Full-year adjusted operating profit outlook revised down by $45 million to $15 million at constant currency, and adjusted EPS to $4.01-$4.05.

    • Retention improvement is taking longer than expected, leading to a $20 million impact from tempered maintenance micro pricing.

    • Productivity and cost headwinds resulted in an incremental $50 million impact versus prior full-year outlook.

    Guidance & targets

    26
    CategoryTargetConfidence
    Global new equipment market
    stabilize with growth in all regions except China
    high materiality
    High
    Global modernization growth
    robust with double-digit growth across all regions
    medium materiality
    High
    Net sales
    $15.1 billion to $15.3 billion
    high materiality
    High
    Organic sales growth
    low to mid-single digits
    high materiality
    High
    Adjusted operating profit
    down $30 million to flat on an actual currency basis
    high materiality
    High
    Adjusted operating profit (constant currency)
    down $45 million to $15 million at constant currency
    high materiality
    High
    Adjusted free cash flow
    $1.5 billion to $1.55 billion
    high materiality
    High
    Adjusted EPS
    $4.01 to $4.05
    high materiality
    High
    Service organic sales growth
    mid-single-digit growth
    medium materiality
    High
    New Equipment organic sales trend
    continue to improve sequentially
    medium materiality
    High
    Total adjusted operating profit
    flattish
    medium materiality
    High
    Adjusted EPS decline
    at a level similar to the first half of the year
    medium materiality
    High
    Profit growth
    expected
    medium materiality
    High
    Service profit
    improve sequentially
    medium materiality
    High
    New Equipment business
    back to growth
    medium materiality
    High
    Service revenue growth
    approximately 6%
    medium materiality
    High
    Modernization organic sales growth
    normalize to a low teens level
    medium materiality
    High
    New Equipment growth
    positive growth
    medium materiality
    High
    Service margins
    around mid-24%
    medium materiality
    High
    Service margins
    around 25%
    medium materiality
    High
    Service margins
    below 24%
    medium materiality
    High
    Productivity headwinds (Q2)
    will continue in the second half
    medium materiality
    High
    Investments in service excellence and pricing
    $50 million
    medium materiality
    High
    Incremental productivity headwinds
    $50 million
    high materiality
    High
    Maintenance micro pricing implementation impact
    $20 million negative versus prior outlook
    medium materiality
    High
    Restructuring savings
    realize savings for the balance of the year consistent with our prior outlook
    low materiality
    High

    Segment performance

    6
    SegmentRevenueYoYQoQMargin
    Service
    Growth across all lines of business and regions. Operating profit of $599 million increased $16 million at constant currency as higher volume and favorable pricing more than offset higher labor costs, strategic investments, productivity, and unfavorable mix. Margin declined 170 basis points versus the prior year.
    Maintenance organic sales: 3%Repair organic sales: 12%Modernization organic sales: 24%Modernization orders: 9%Modernization backlog: 26% YoY at constant currency
    		—9% organic—23.2%
    New Equipment
    Lowest rate of decline in 9 quarters. Operating profit of $40 million declined $30 million at constant currency and operating margin declined 220 basis points. Decline driven by lower volume and unfavorable price and mix.
    Orders: -5% YoYBacklog: 4% YoY at constant currencyBacklog (excluding China): 9% YoY
    		—-1% organic—3.1%
    New Equipment - Americas
    Supported by strong backlog conversion and a healthy backlog built through orders growth in prior periods.
    Orders: double-digit growth
    		—10%——
    New Equipment - Asia Pacific
    Driven by strength in Japan and India, partially offset by lower sales in Korea.
    Sales drivers: Japan and India strength, offset by Korea
    		—low single digits——
    New Equipment - EMEA
    Primarily due to weakness in the Middle East and Southern Europe.
    Sales drivers: weakness in Middle East and Southern Europe
    		—-4%——
    New Equipment - China
    Consistent with the backlog decline but reflecting a slight sequential improvement.
    Sales trend: consistent with backlog decline, slight sequential improvement
    		—high teens decline——

    Operational metrics

    30
    Share repurchases
    $800 million
    H1 FY26

    Part of capital returned to shareholders.

    Dividend increase
    5%
    H1 FY26

    Part of capital returned to shareholders.

    Total capital returned to shareholders
    $1.1 billion
    H1 FY26

    Combined share repurchases and dividends.

    Adjusted operating profit
    -$32 million
    Q2 FY26

    Decline in operating profit.

    Adjusted operating profit margin
    15.2%down 180 bps
    Q2 FY26

    Decline in operating profit margin.

    Adjusted EPS
    -$0.04down 4%
    Q2 FY26

    Decline in adjusted EPS.

    Connected units on OtisOne
    1.1 million
    Q2 FY26

    Progress in connecting units.

    Service excellence investment
    $15 million
    Q2 FY26

    Investment in service quality.

    Service quality index improvement
    7 points
    Q2 FY26

    Improvement in service quality metrics.

    Retention rate ex China
    down
    Q2 FY26

    Overall retention rate ex China was down this quarter.

    Maintenance and repair organic sales
    6%sequential acceleration
    Q2 FY26

    Meaningful sequential acceleration.

    Maintenance organic sales
    3%
    Q2 FY26

    Growth in maintenance.

    Repair organic sales
    12%
    Q2 FY26

    Strong growth in repair.

    New Equipment orders
    double-digit growth
    Q2 FY26

    Strong orders growth in Americas.

    New Equipment orders
    low single-digit growth
    Q2 FY26

    Orders growth in EMEA.

    New Equipment orders
    decline
    Q2 FY26

    Orders decline in APAC.

    New Equipment orders
    decline
    Q2 FY26

    Orders decline in China.

    Service operating profit
    $599 millionincreased $16 million
    Q2 FY26

    Service operating profit.

    New Equipment operating profit
    $40 milliondeclined $30 million
    Q2 FY26

    New Equipment operating profit.

    Middle East conflict impact
    not significant
    FY26

    Do not expect a significant impact to outlook.

    Productivity and cost headwinds (incremental)
    $50 millionincremental versus prior full year outlook
    FY26

    Headwind impact on full-year outlook.

    Maintenance micro pricing implementation impact
    $20 millionimpact versus prior outlook
    FY26

    Headwind impact on full-year outlook due to tempered micro pricing.

    Service revenue growth
    approximately 6%
    H2 FY26

    Expected service revenue growth in the second half.

    Modernization normalization
    low teens level
    H2 FY26

    Modernization growth expected to normalize in the second half.

    Service margins
    mid-24%
    H2 FY26

    Expected service margins in the second half.

    Service margins
    25%
    Q4 FY26

    Expected service margins by Q4.

    Service margins
    below 24%
    FY26

    Full-year service margins outlook.

    Hiring mechanics
    approximately 1,000
    per year

    On track for hiring targets.

    Raw material costs
    $600 million to $700 million
    per year

    Typical annual raw material costs.

    Commodities locked in
    98%
    FY26

    Majority of commodities locked in for the rest of the year.

    Industry KPIs

    6
    MetricValueDetails
    Capacity expansion—
    Parts aftermarket business—
    Data center prime power demand—
    Incremental margin operating leverage—
    Order backlog order intake by segment—
    Industry production market size forecasts—

    Orderbook & backlog

    3
    Modernization backlogup 26%Q2 FY26

    YoY at constant currency

    driven by ongoing orders growth

    New Equipment backlogup 4%Q2 FY26

    YoY at constant currency

    providing good visibility into future sales

    New Equipment backlog (excluding China)up 9%Q2 FY26

    YoY

    providing good visibility into future sales

    Deals & partnerships

    3
    we maintainAcquisition of a majority stake

    Investment in growth and strategic investments.

    Silverstein Properties and Turner ConstructionCollaboration to secure elevators and escalators

    Secured 60 elevators and escalators to World Trade.

    Tension 117 projectSupply of elevators and escalators for a major project

    Will supply over 250 elevators and escalators to the tallest current construction or modernization site in China.

    Capital programs

    2
    Service excellence investmentunderway$50 million
    Period spend: $15 million
    Spent to date: $30 million
    Start: Q1 FY26

    Benefit: drive retention improvement and pricing upsides in maintenance and repair

    On track with the plan, with $15 million invested in Q2, totaling $30 million in H1 FY26, and $20 million expected in H2 FY26.

    Service operating model programplan to work structurally

    Benefit: drive frontline excellence, standardize core field and sales processes, leverage learnings from service excellence

    A natural extension of the UpLift transformation, aiming to systematically bring every operating territory to a high level of excellence.

    Risks & headwinds

    6
    Middle East conflict

    do not expect a significant impact to our outlook

    Retention improvement taking longer than expectedFY26

    $20 million impact vs prior outlook (from tempered maintenance micro pricing)

    Mitigation: Rebalancing micro pricing implementation, continued investment in service excellence and service operating model.

    Productivity and cost headwindsFY26

    $50 million incremental impact vs prior full year outlook

    Mitigation: Actions being taken, service operating model program to support stronger sustained performance.

    Workforce onboarding for new mechanicsQ2 FY26, temporary

    impacted productivity, took longer than expected for newly hired mechanics to reach full effectiveness

    Mitigation: Adjusting operations through service operating model.

    Higher labor rates for accelerated mod and repair executionQ2 FY26, temporary

    required higher labor rates to make resources available where and when needed, impacting productivity

    Mitigation: Adjusting operations through service operating model.

    Inflation in repair parts and raw materialsQ2 FY26, ongoing

    pretty significant inflation

    Mitigation: Offset with productivity and eventual price renewals when maintenance contracts come up.

    What to watch in Q3 FY26

    5

    Service margin progression

    Q3 FY26, Q4 FY26
    Current23.2% in Q2 FY26
    TargetMid-24% in Q3 FY26, ~25% in Q4 FY26

    Why it matters

    Key indicator of the effectiveness of productivity initiatives and cost management, crucial for overall profitability.

    Looking at the margins in service when you compare first half that are around 23.1% to the second half expected around mid-24%, this is a 150 basis point margin expansion in the second half based on 80 basis points from repair price. This is happening.

    Q&A highlights

    5

    Clarification on micro pricing tempering, details on productivity headwinds, and H2 service margin outlook.

    Judy explained micro pricing success in repair but tempering in maintenance to balance retention. Cristina detailed productivity headwinds (cultural shift, longer onboarding for new mechanics, higher rates for accelerated execution) and projected H2 service margins to ramp to mid-24% by Q4, driven by repair price, mod/repair volume, and SG&A reduction.

    “On the maintenance side, there's really 2 factors going on. One, which we've always known as most of our maintenance contracts come up every few years. So we don't have the opportunity to reprice them on an annual basis. So when they come up, we're trying to drive for that. But trying to balance retention rates with additional micro pricing is where we're trying to find that balance, Nigel, that says in the maintenance contract, let's see what's appropriate.”

    asked by Nigel Coe · answered by Judith Marks

    2 min read5 chapters

    Detailed Narrative

    01

    Strategic Investments in Service Quality and Operating Model

    Otis is investing $50 million in service excellence and pricing in FY26, with $30 million deployed in the first half. This initiative aims to improve service quality metrics and customer retention, which are crucial for long-term service growth. The service quality index has improved 7 points in targeted operating territories, though overall retention ex-China was down this quarter. The company plans to implement a new service operating model to drive frontline excellence, standardizing field and sales processes across its 1,400 operating territories, building on the UpLift transformation.

    02

    Revised Full-Year Outlook Due to Operational Headwinds

    The company revised its full-year adjusted operating profit outlook down by $45 million to $15 million at constant currency and adjusted EPS to $4.01-$4.05. This revision is primarily due to a $20 million impact from tempering maintenance micro pricing (as retention improvement is taking longer than expected) and an incremental $50 million from productivity and cost headwinds. These headwinds stem from service excellence investments, longer onboarding for new mechanics, and higher labor rates for accelerated modernization and repair execution.

    03

    Robust Service Segment Performance Despite Margin Pressure

    Service organic sales grew 9%, driven by 24% modernization growth and 12% repair growth, marking the strongest performance in 10 quarters for repair. Modernization orders increased 9%, and its backlog remains robust, up 26% at constant currency. Despite strong top-line growth, service operating margin declined 170 basis points to 23.2% due to mix, higher costs, productivity headwinds, and deliberate investments. Management expects service margins to improve sequentially in the second half, reaching approximately 25% by Q4.

    04

    New Equipment Segment Showing Stability and H2 Growth Prospects

    New Equipment organic sales declined 1%, representing the lowest rate of decline in 9 quarters. Americas sales increased 10%, and Asia Pacific grew low single digits, offsetting declines in China (high teens) and EMEA (4%). New Equipment orders declined 5% overall but saw double-digit growth in the Americas. Backlog increased 4% at constant currency (9% excluding China), providing confidence for stability and a return to growth in the second half of the year.

    05

    Strong Cash Generation and Capital Allocation

    Otis generated strong adjusted free cash flow of $290 million, up 19% year-over-year, reflecting the resilience of its business model. In the first half of FY26, the company bought back approximately $800 million of shares and raised its dividend 5%, returning over $1.1 billion to shareholders. This capital allocation strategy supports both strategic investments, including the acquisition of a majority stake in 'we maintain', and shareholder returns.

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