Otis stock rises after earnings beat as service business drives growth

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Shares of Otis Worldwide (OTIS [https://seekingalpha.com/symbol/OTIS]) climbed as much as 2.9% on Wednesday after the elevator and escalator manufacturer reported third-quarter earnings that topped Wall Street expectations and raised the midpoint of its full-year earnings outlook.

The company posted adjusted earnings of $1.05 per share, ahead of analyst estimates of $1.00, and revenue of $3.69 billion, above consensus forecasts of $3.64 billion.

Net income fell to $374 million, or $0.95 per share, from $540 million, or $1.34 per share, a year earlier, as last year’s results included one-time tax benefits.

SERVICE SEGMENT POWERS RESULTS

Otis (OTIS [https://seekingalpha.com/symbol/OTIS]) said net sales rose 4% year over year, or 2% organically, driven by strength in its global Service business, where net sales climbed 9% (6% organically) and operating profit margin expanded 70 basis points to 25.5%. The company’s maintenance portfolio grew 4%, while modernization orders surged 27% and modernization backlog increased 22%.

In a conference call with analysts to discuss results, Otis (OTIS [https://seekingalpha.com/symbol/OTIS]) Chair, President and Chief Executive Judy Marks said the company continues to focus heavily on improving customer retention in its maintenance portfolio after a softer performance in 2024. She again acknowledged that Otis (OTIS [https://seekingalpha.com/symbol/OTIS]) “was not pleased” with last year’s retention results and made a deliberate choice to reinvest in service quality and customer experience to strengthen long-term relationships.

“It’s going to be a long journey,” Marks said, noting that regaining the company’s historical 94% retention rate will require sustained effort to rebuild customer trust and win back lost accounts.

Despite the ongoing recovery effort, Marks said Otis’s (OTIS [https://seekingalpha.com/symbol/OTIS]) service business remains on a solid growth trajectory. The company expects to add roughly 100,000 maintenance units in 2025, bringing its total portfolio close to 2.5 million units.

She said this scale provides significant advantages, both in terms of operational efficiency and revenue opportunities from maintenance and repair work.

“That gives us the density, not just for maintenance and for productivity in maintenance, but it gives us additional repair opportunities,” she said, adding that the company has “good line of sight” into continued portfolio expansion.

WEAKER NEW EQUIPMENT SALES OFFSET

Sales in the New Equipment segment fell 4% from the prior year, reflecting a 20% decline in China and a high-single-digit drop in the Americas, partly offset by modest growth in Asia-Pacific and EMEA.

Operating profit in the segment decreased to $59 million, with margins narrowing to 4.7% from 6.4% a year earlier, as lower volume and pricing pressure outweighed productivity improvements and restructuring savings.

PROFITABILITY AND CASH FLOW

Companywide GAAP operating profit increased to $586 million from $363 million last year, while adjusted operating profit rose to $632 million, reflecting the benefit of higher Service margins and cost efficiencies. Adjusted operating margin expanded to 17.1%, up 20 basis points.

Otis generated $374 million in operating cash flow for the quarter and $337 million in free cash flow, both modestly below year-ago levels due to lower net income. The company has repurchased approximately $800 million in shares year to date.

2025 OUTLOOK

Otis raised the midpoint of its adjusted earnings forecast for 2025, now expecting adjusted EPS of $4.04 to $4.08, up 5% to 7% from last year. The company reaffirmed its revenue guidance of $14.5 billion to $14.6 billion, representing roughly 2% growth, including about 5% organic growth in Service and a 7% decline in New Equipment.

The company also reaffirmed plans for adjusted free cash flow of around $1.45 billion this year and projected ongoing savings from its UpLift cost-efficiency program, which is expected to deliver $200 million in annualized savings by year-end 2025.

Otis said its solid third-quarter performance and strong order backlog support continued earnings growth despite ongoing weakness in China’s construction market.

MORE ON OTIS WORLDWIDE

* Otis Worldwide Corporation (OTIS) Q3 2025 Earnings Call Transcript [https://seekingalpha.com/article/4834659-otis-worldwide-corporation-otis-q3-2025-earnings-call-transcript]
* Otis Worldwide Corporation 2025 Q3 - Results - Earnings Call Presentation [https://seekingalpha.com/article/4834690-otis-worldwide-corporation-2025-q3-results-earnings-call-presentation]
* Otis Worldwide Corporation (OTIS) Presents At Morgan Stanley's 13th Annual Laguna Conference (Transcript) [https://seekingalpha.com/article/4822579-otis-worldwide-corporation-otis-presents-at-morgan-stanleys-13th-annual-laguna-conference]
* Otis raises adjusted EPS outlook to $4.04–$4.08 while accelerating modernization growth in 2025 [https://seekingalpha.com/news/4510506-otis-raises-adjusted-eps-outlook-to-4_04-4_08-while-accelerating-modernization-growth-in-2025]
* Otis Worldwide Non-GAAP EPS of $1.05 beats by $0.05, revenue of $3.69B beats by $50M [https://seekingalpha.com/news/4509998-otis-worldwide-non-gaap-eps-of-1_05-beats-by-0_05-revenue-of-3_69b-beats-by-50m]