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    OTIS
    Earnings call· Dec 2025(Q4 FY25)

    Otis Worldwide Corp OTIS

    Jan 28, 2026 Source

    Executive summary

    Otis Q4 FY25 — Record Modernization Orders and Strong Service-Driven Performance

    Otis concluded FY25 with solid Q4 performance, driven by its service-centric strategy, marked by record modernization orders and strong free cash flow generation. The company is poised for accelerated top-line growth in FY26, leveraging its robust service portfolio and an improving new equipment market outside China, while continuing strategic investments in service excellence and digital capabilities.

    Highlights

    5

    • Secured record modernization orders, with backlog up 30% at constant currency, the highest since spin.

    • Achieved record adjusted free cash flow of $817 million in Q4 FY25, contributing to $1.6 billion for the full year.

    • Adjusted operating profit margin expanded 70 basis points in Q4 FY25, driven by a 100 basis point improvement in service margin.

    • Maintenance portfolio grew 4% for the 14th consecutive quarter, reaching approximately 2.5 million units.

    • Adjusted EPS grew 11% or $0.10 in Q4 FY25, marking the strongest performance in the last 6 quarters.

    Concerns

    5

    • New Equipment organic sales declined 6% in Q4 FY25, with Americas down 5% and China declining mid-single digits.

    • New Equipment operating profit declined $15 million at constant currency in Q4 FY25, with margins down 110 basis points to 3.6%.

    • China new equipment backlog remained down significantly at year-end, expected to weigh on sales, particularly in early FY26.

    • Tariff headwinds impacted New Equipment operating profit in Q4 FY25.

    • Service repair growth was slightly softer than expectations in Q4 FY25 due to prioritization of service excellence investments.

    Guidance & targets

    16
    CategoryTargetConfidence
    Total organic sales growth
    low to mid-single digits
    high materiality
    High
    New Equipment organic sales growth
    down low single digits to flat
    medium materiality
    High
    Service organic sales growth
    mid- to high single digits
    high materiality
    High
    Maintenance and Repair organic sales growth
    mid-single-digit portfolio growth, solid pricing, strong field performance
    medium materiality
    High
    Total net sales
    $15 billion to $15.3 billion
    high materiality
    High
    Adjusted EPS growth
    mid- to high single digits
    high materiality
    High
    Adjusted operating profit growth (constant currency)
    $60 million to $100 million
    high materiality
    High
    Adjusted free cash flow
    $1.6 billion to $1.7 billion
    high materiality
    High
    Dividend payout ratio
    40%
    medium materiality
    High
    Share repurchases
    approximately $800 million
    high materiality
    High
    Effective tax rate
    24.5%
    low materiality
    High
    Q1 FY26 Service organic sales growth
    approximately 6%
    medium materiality
    High
    Q1 FY26 New Equipment top line
    down in a similar range as the fourth quarter
    medium materiality
    High
    Q1 FY26 EPS
    around flat
    high materiality
    High
    China new equipment market decline
    about 8% down
    high materiality
    Medium
    New Equipment margin rate
    slightly below 4%
    medium materiality
    High

    Segment performance

    6
    SegmentRevenueYoYQoQMargin
    Service
    Service organic sales grew 5% in Q4 FY25, with maintenance and repair up 4% and modernization up 9%. Operating profit margins expanded 100 basis points to 25.5%, matching record service margins. This was driven by higher volume, favorable pricing, productivity, and gains on asset sales, partially offset by higher labor costs and mix/churn.
    Maintenance and repair organic sales growth: 4%Modernization organic sales growth: 9%Maintenance portfolio growth: 4%Maintenance price: 3% positiveOperating profit (constant currency): $638 million, up $49 million
    		—5%—25.5%
    New Equipment
    New Equipment organic sales declined 6% in Q4 FY25. EMEA sales grew 6%, Asia Pacific grew low single digits, while China and Americas declined. Operating profit margins declined 110 basis points to 3.6%, driven by lower volumes, unfavorable price, tariff headwinds, and mix, partially offset by productivity.
    Operating profit (constant currency): $47 million, down $15 million
    		—-6%—3.6%
    EMEA
    New Equipment sales grew 6% in Q4 FY25, driven by strength in the Middle East and Southern Europe. Modernization orders increased over 100%.
    		—6%——
    Asia Pacific
    New Equipment sales grew low single digits in Q4 FY25, supported by solid growth in India and Japan, partially offset by weakness in Korea. Modernization orders grew high teens.
    		—low single digits——
    Americas
    New Equipment sales declined 5% in Q4 FY25, slightly below expectations due to project execution timing. Modernization orders grew over 20%.
    		—-5%——
    China
    New Equipment orders declined mid-single digits in Q4 FY25, but showed improvement in the second half. Modernization sales more than doubled in Q4 and were up 75% for the full year. Service business continues to grow, now representing 47% of China sales.
    Modernization sales growth: 100% (Q4 YoY), 75% (FY YoY)Service sales as % of total China sales: 47% (Q4), 42% (Q3)New Equipment as % of total Otis NE revenue: 19% (Q4), 21% (Q3)
    		—mid-single digits decline (New Equipment)——

    Operational metrics

    49
    Adjusted operating profit margin expansion
    70 bps
    Q4 FY25

    Driven by strength in service margin.

    Adjusted EPS growth
    11%
    Q4 FY25

    Highest level this year and strongest performance in last 6 quarters.

    Connected units
    1.1 million
    FY25

    Providing predictive maintenance, data-driven proactive repairs, and AI application.

    Subscription revenue growth
    35%
    FY25

    Driven by growing connectivity of units.

    Adjusted operating profit margin expansion
    40 bps
    FY25

    Since spin, improved margin by 30 bps or more each year.

    Adjusted EPS growth
    6%
    FY25

    Reflecting solid operational execution and service business contribution.

    Capital returned to shareholders
    $1.5 billion
    FY25

    Enabled by strong cash flow.

    Combined new equipment and modernization orders growth
    10%
    Q4 FY25

    Driven by solid performance in EMEA and the Americas.

    New Equipment orders growth
    -2%constant currency
    Q4 FY25

    Strength in EMEA and Americas offset by Asia Pacific decline.

    Modernization orders growth
    43%constant currency
    Q4 FY25

    Highest quarterly orders since spin, surpassing Q3 record.

    Maintenance portfolio growth
    4%
    FY25

    14th consecutive quarter of growth.

    Adjusted operating profit (FX impact)
    $18 milliontailwind
    Q4 FY25

    Foreign exchange tailwind.

    Service operating profit (constant currency)
    $638 millionincreased $49 million
    Q4 FY25

    Driven by higher volume, favorable pricing, productivity, and gains on asset sales.

    Service operating profit margin expansion
    100 bps
    Q4 FY25

    Strongest margin expansion of the year, matching record service margins from last quarter.

    New Equipment operating profit (constant currency)
    $47 milliondeclined $15 million
    Q4 FY25

    Driven by lower volumes, unfavorable price, tariff headwinds, and mix.

    Operational EPS growth contribution
    $0.09YoY
    FY25

    Operational component of EPS growth.

    Operational EPS growth contribution
    $0.15YoY
    FY26

    Operational component of EPS growth, stronger than FY25.

    FX tailwind (EPS)
    $0.08
    FY26

    Expected FX tailwind for the year.

    Euro to USD exchange rate
    $1.20
    spot

    Spot rate as of day prior to call, compared to assumption of $1.18.

    Restructuring program savings
    $240 million
    FY24-FY26

    Total savings from uplift and China transformation programs.

    New equipment revenue drag
    $400 million
    FY24-FY25

    Approximate drag on growth from new equipment market deterioration.

    China service sales as % of total China sales
    42%
    Q3 FY25

    Increased to 47% in Q4 FY25.

    Service retention rate
    92%
    end of FY24

    Mentioned by analyst, management confirmed stabilization ex-China in FY25.

    Adjusted EPS growth
    $0.03
    H1 FY25

    EPS growth in the first half of the year.

    Annual passenger journeys supported by London Underground escalators
    1.2 billion
    annual

    Equipment operates up to 20 hours a day.

    Combined new equipment and modernization orders growth
    27%
    Q3 FY25

    Sequential growth in orders, following 12% in Q1 and 22% in Q2.

    Service operating profit growth (constant currency)
    $200 millionup from $150 million in FY25
    FY26

    Expected acceleration of service contribution.

    China transformation run rate benefit
    $20 millionsmaller year-on-year than FY25
    FY26

    Most benefits are in the baseline for FY26.

    China transformation run rate benefit (total)
    $40 million
    FY26

    Total run rate, with only $10 million incremental in FY26.

    New field professionals added
    1000
    FY25

    In anticipation of continued portfolio growth and strong demand for repair work.

    China revenue as % of total Otis revenue
    11%
    FY25

    Was 12% in Q4 FY25.

    China new equipment revenue as % of total Otis new equipment revenue
    19%
    Q4 FY25

    Was 21% in Q3 FY25.

    Service operating profit margin expansion
    40-60 bps
    annual

    Consistent margin expansion in service business.

    Modernization margin increase
    50 bpsquarter-over-quarter vs Q3 FY25
    Q4 FY25

    Ramping up modernization margins.

    One-time gain from asset sales
    $14 million
    Q4 FY25

    Related to service transformation strategy and outsourcing spare parts management.

    Modernization market growth
    13%
    FY25

    Driven by aging units (over 15-20 years old).

    Modernization orders growth
    12%
    Q1 FY25

    First quarter orders growth.

    Modernization orders growth
    22%
    Q2 FY25

    Second quarter orders growth.

    China new equipment market decline
    15%
    H1 FY25

    Decline in the first half of the year.

    China new equipment market decline
    10%
    H2 FY25

    Decline in the second half of the year.

    China new equipment market size
    370,000
    FY25

    Approximate market size.

    China new equipment market decline
    13%
    FY25

    Overall market decline for the year.

    China Mod bond stimulus units
    80,000
    FY24

    Units that could be modernized, fully funded by government.

    China Mod bond stimulus units
    120,000
    FY25

    Units that could be modernized, fully funded by government.

    China Mod bond stimulus value per unit
    RMB 150,000
    current

    Value program for solutions to fit this amount.

    Service operating profit growth (constant currency)
    $150 millionYoY
    FY25

    Contribution to profit growth.

    Q1 FY25 Service organic sales growth
    1%
    Q1 FY25

    Weaker service top line growth, particularly in repair.

    Q1 FY26 Operating profit (actual FX)
    around flat
    Q1 FY26

    Impacted by tariffs and execution timing.

    Q1 FY26 Operating margin
    16%
    Q1 FY26

    Expected margin for the quarter.

    Industry KPIs

    3
    MetricValueDetails
    Tariff cost impact—
    Data center prime power demandmid-single-digit growth
    Industry production market size forecasts370,000units

    Orderbook & backlog

    3
    Modernization backlogup 30%Q4 FY25

    constant currency

    Highest since spin, positioning well for 2026. Includes multiyear major projects.

    Total backlogup 8%Q4 FY25

    constant currency

    Excluding China, total backlog increased 14%.

    New Equipment backlogup 2%Q4 FY25

    year-over-year constant currency

    After 7 consecutive quarters of decline. Excluding China, grew 9%. China backlog remained down significantly.

    Product announcements

    4
    ProductTypeDetails
    Gen3 Comfortlaunch
    SkyRise Mod and Link Modlaunch
    Upgraded Smart Cab and new AI tools (Otis AI inspection robot, Otis AI agent)launch
    Gen3 product familylaunch

    Deals & partnerships

    4
    Children's Health and University of Texas SouthwesternMajor new equipment project for a pediatric hospital in Dallas.

    To provide 39 elevators, including 26 SkyRise units and 2 Gen3 elevators with Otis ONE Pro connected service platform. Reinforces Otis' role in critical healthcare infrastructure.

    Shanghai Metro Line 19Supply of heavy-duty public escalators for a new metro line.

    Selected to supply more than 490 heavy-duty public escalators equipped with real-time remote performance monitoring sensors. Continues long-standing relationship with Shanghai Metro, where Otis supports ~2,700 units across 13 lines.

    Transport for LondonComprehensive service and modernization contract program for London Underground escalators.several decades-long

    Won contract for 172 escalators, bringing total units serviced to over 300. Teams will maintain, refurbish, or replace units operating up to 20 hours a day and supporting 1.2 billion annual passenger journeys.

    Armani Group and Vesselin (project developer)Landmark new equipment project at Armani Hallson KLCC in Kuala Lumpur.

    Delivering 26 SkyRise elevator systems featuring Compass 360 destination management technology, Otis ONE IoT solution, and eView Smart screens. Brings advanced vertical mobility and innovative design to a prestigious development.

    Risks & headwinds

    5
    New Equipment margin pressureFY26

    declined 110 bps to 3.6% in Q4 FY25

    Mitigation: Stabilizing New Equipment segment, benefits from restructuring actions, navigating backlog.

    Tariff headwindsFY26

    impacted New Equipment operating profit

    Mitigation: Tariffs become part of the baseline for 2026; small headwinds from commodities expected.

    Wage inflationFY26

    higher labor cost

    Mitigation: Offset by productivity, increased density, digital capabilities, and cost benefits from transformation programs.

    China market declineFY26

    New Equipment market down 13% in FY25, expected down 8% in FY26

    Mitigation: Strategic shift to service-driven model in China, focus on high-value units, Mod bond stimulus program, and anticipation of market stabilization.

    Interest expenseFY26

    higher interest expense

    Mitigation: Offset by lower share count and noncontrolling interest; ongoing benefits from share buyback.

    What to watch in Q1 FY26

    5

    Service organic sales growth

    Q1 FY26
    Current5% in Q4 FY25
    Targetapproximately 6%

    Why it matters

    Indicates the acceleration of the service-driven strategy and the effectiveness of investments in service excellence.

    Looking at the first quarter, we expect service top line to ramp up sequentially with first quarter service organic sales growth of approximately 6% on the back of a strong execution in repair and modernization.

    Q&A highlights

    7

    What are the growth expectations for maintenance and repair within Services for '26, how will service profits trend, and what's the progress on retention and churn?

    Management expects repair rates to ramp up to 10%+ and maintenance to gain at least a point, leading to 1-2 points higher service organic growth. Service operating profit is projected to grow $200 million at constant currency in FY26, up from $150 million in FY25. Retention rate ex-China stabilized in FY25, with small growth expected in FY26, focusing on high-value units.

    “Our goal in '25 was to stabilize that retention rate after seeing a decline from '24 to '25. And ex China, we're pleased to say that we've done that. And now we expect small growth to start yielding in '26.”

    asked by Amit Mehrotra · answered by Judith Marks

    2 min read6 chapters

    Detailed Narrative

    01

    FY25 Performance Highlights and Strategic Milestones

    Otis marked its fifth year as an independent public company, achieving significant milestones including record modernization orders and adjusted free cash flow. The company maintained its leadership in urban mobility, moving 2.5 billion people daily and servicing 2.5 million units globally. Strategic initiatives like the uplift program and China transformation were successfully executed, including the buyout of the minority shareholder in Otis Electric, driving operational excellence and setting a strong foundation for future growth.

    02

    Innovation and Digital Transformation

    Otis continues to lead in innovation, unveiling new AI tools like the Otis AI inspection robot and AI agent, alongside new product families such as Gen3 Comfort for residential modernization and SkyRise Mod. The Gen3 product family, launched in EMEA, integrates Otis ONE IoT connectivity for predictive maintenance and real-time monitoring. Connected units globally approached 1.1 million, driving 35% subscription revenue growth in FY25 and enhancing service quality and productivity.

    03

    Modernization Market Opportunity and Strategy

    The modernization market presents a significant multiyear tailwind, with almost 9 million units in the global installed base (over 15-20 years old) ripe for upgrades. Otis' strategy involves industrializing its modernization approach, integrating it into new equipment factories, and specializing its sales force and installation crews. The company offers phased packages and capital planning tools to meet diverse customer needs, aiming for sustained growth in the teens for modernization revenue.

    04

    China Market Dynamics and Strategic Shift

    The China new equipment market saw a moderated decline in H2 FY25, with the full year market down 13% to approximately 370,000 units. Otis' strategy in China has shifted to reduce dependence on new equipment, with service sales now representing 47% of China sales in Q4 FY25, up from mid-teens at spin. The Mod bond stimulus program, which funded 120,000 modernization units in FY25, is expected to continue in FY26 at comparable levels, supporting modernization growth in the region.

    05

    Service Excellence Investments and Retention

    Otis is making significant investments in service quality and excellence, including adding approximately 1,000 field professionals in FY25. These investments are aimed at stabilizing retention rates outside of China, which was achieved in FY25, and are expected to drive small growth in retention in FY26 and beyond. The focus is on retaining high-value units and improving service delivery through better resource allocation and proactive maintenance, leveraging tools like Otis ONE.

    06

    Capital Allocation and Shareholder Returns

    The company generated $1.6 billion in adjusted free cash flow in FY25, enabling the return of $1.5 billion to shareholders through dividends and share repurchases. For FY26, Otis targets a 40% dividend payout ratio and plans approximately $800 million in share repurchases, while maintaining flexibility for bolt-on acquisitions. This shareholder-oriented capital allocation strategy is supported by sustainable free cash flow conversion.

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