Earnings call transcript: Otis Q2 2025 results show mixed performance

Otis Worldwide Corp reported its second-quarter earnings for 2025, revealing mixed results that impacted its stock performance. The company exceeded earnings per share (EPS) expectations but fell short on revenue forecasts. Otis reported an EPS of $1.05 compared to the forecasted $1.03, a 1.94% surprise. However, revenue came in at 3.6 billion dollars, missing the anticipated 3.7 billion dollars by 2.7%. Following the announcement, Otis’s stock price dropped 10.9% in pre-market trading, reflecting a negative investor sentiment. According to InvestingPro data, the company maintains strong profitability metrics with a 30.2% gross profit margin and has consistently raised its dividend for five consecutive years.

Key Takeaways

• Otis beat EPS expectations with a reported $1.05 compared to the forecasted $1.03.
• Revenue fell short of expectations, coming in at 3.6 billion dollars.
• Stock price decreased by 10.9% in pre-market trading.
• The company maintained its full-year adjusted EPS guidance of $4.00 to $4.10.
• Otis’s service business continues to drive growth, contributing 90% of operating profit.

Company Performance

Otis’s performance in the second quarter of 2025 highlighted the company’s strengths and challenges. While the EPS beat expectations, the revenue shortfall indicated challenges in the market, particularly in new equipment orders. Despite these hurdles, Otis’s service business remains a strong pillar, contributing significantly to its profitability. The company is navigating a tough global market, with varying regional performances affecting overall results.

Financial Highlights

• Revenue: 3.6 billion dollars (flat year-over-year)
• Earnings per share: $1.05 (exceeded forecasts)
• Adjusted operating profit margin: 17% (flat year-over-year)
• Share repurchases: 300 million dollars in Q2, 550 million dollars year-to-date

Earnings vs. Forecast

Otis reported an EPS of $1.05, surpassing the forecast of $1.03, marking a 1.94% surprise. However, the company fell short on revenue, reporting 3.6 billion dollars against an expected 3.7 billion dollars, a 2.7% miss. This mixed performance is a continuation of the company’s recent trend of beating EPS expectations while struggling with revenue targets.

Market Reaction

Following the earnings release, Otis’s stock price dropped significantly, falling by 10.9% in pre-market trading to 89.88 dollars. This decline reflects investor concerns over the revenue miss and the broader challenges in the new equipment market. The stock’s performance is notable as it approaches its 52-week low of 86 dollars. InvestingPro analysis suggests the stock is slightly undervalued at current levels, with three analysts recently revising their earnings expectations upward. The stock historically trades with low volatility, maintaining a beta of 0.97, which could interest defensive investors. Discover more insights about Otis and other market opportunities through InvestingPro’s comprehensive research reports, available for over 1,400 US stocks.

Outlook & Guidance

Otis maintained its full-year adjusted EPS guidance of $4.00 to $4.10, indicating confidence in its service-driven business model. The company expects its net sales for 2025 to range between 14.5 billion and 14.6 billion dollars, with organic sales growth of approximately 1%. Otis is optimistic about its service segment, projecting organic growth of around 5%. With a market capitalization of $35.25 billion and a P/E ratio of 26.2, the stock trades at a premium relative to its near-term earnings growth. InvestingPro identifies Otis as a prominent player in the Machinery industry, operating with moderate debt levels and maintaining strong cash flow metrics.

Executive Commentary

CEO Judy Marks expressed confidence in the company’s long-term outlook despite near-term challenges. "While we face near term challenges in our new equipment business, we remain confident in our long term outlook," she stated. Marks highlighted the growth opportunities in modernization and the expanding global installed base.

Risks and Challenges

• Decline in new equipment orders, particularly in China.
• Global market volatility affecting revenue projections.
• Potential supply chain disruptions impacting production and delivery.
• Macroeconomic pressures, including tariffs and currency fluctuations.
• Competitive pressures in the modernization and service markets.

Q&A

During the earnings call, analysts focused on the dynamics of service growth and order conversion challenges. Questions also addressed the company’s strategy in China and expectations for margin expansion. The management provided insights into free cash flow considerations and how they plan to navigate the competitive landscape.

Full transcript - Otis Worldwide Corp (OTIS) Q2 2025:

Conference Operator: Good morning, and welcome to Otis Second Quarter twenty twenty five Earnings Conference Call. This call is being carried live on the Internet and recorded for replay. Presentation materials are available for download from Otis’ website at www.otis.com. I’ll now turn the call over to Rob Cortaro, Vice President of Investor Relations.

Rob Cortaro, Vice President of Investor Relations, Otis: Thank you, Tina. Welcome to Otis’ second quarter twenty twenty five earnings conference call. On the call with me today are Judy Marks, Chair, CEO and President and Christina Mendez, Executive Vice President and CFO. Please note, except where otherwise noted, the company will speak to results from continuing operations, excluding restructuring and significant nonrecurring items. A reconciliation of these measures can be found in the appendix of the webcast.

We also remind listeners that the presentation contains forward looking statements, which are subject to risks and uncertainties. Otis’ SEC filings, including our Form 10 ks and quarterly reports on Form 10 Q, provide details on important factors that could cause actual results to differ materially. Now I’ll turn it over to Judy.

Judy Marks, Chair, CEO and President, Otis: Thank you, Rob. Good morning, afternoon and evening, everyone. Thank you for joining us. We hope everyone listening is safe and well. Starting with Q2 highlights on Slide three.

Otis delivered solid second quarter and first half results as the Service segment continued to drive strong performance with both a year over year and a sequential operating profit margin improvement. Organic Service sales in the second quarter were up 4% with growth across all business lines and in all regions. Our maintenance portfolio grew 4% again in the quarter, adding to our industry leading 2,400,000 unit portfolio under service. Modernization momentum continued as we accelerated orders to 22% and ended the quarter with the backlog up 16% at constant currency. New equipment orders decreased by 1% due to continued economic challenges in China, while orders in the rest of the world increased 11% versus the prior year.

We continue to make progress with Uplift, and we remain on track to achieve $200,000,000 in run rate savings by year end. Additionally, in response to continued weakness in China, we’re executing additional actions to reduce costs as part of our China transformation. We now anticipate run rate savings of approximately $40,000,000 by year end. Our twenty twenty five in year savings targets remain at $70,000,000 and $20,000,000 for Uplift and China transformation, respectively. Together, these initiatives are enabling us to deliver greater customer centricity and to invest in growth.

In addition, we also now expect the impact of 2025 tariffs to be roughly half of our expectations in April to a range of $25,000,000 to $35,000,000 reflecting more favorable reciprocal tariff rates and our mitigation efforts. We completed approximately $300,000,000 in share repurchases in the second quarter, taking year to date repurchases to approximately $550,000,000 During the quarter, we closed on our previously announced acquisition of eight urban elevator locations in The U. S. This deal further expands our maintenance portfolio and enhances our ability to serve customers. Adjusted EPS was $1.97 in the first half of the year, growing 2% versus the same period last year due to solid margin expansion and continued tax planning efforts.

In June, we published our Connect and Thrive report that outlines our progress and commitments to four key areas: health and safety governance and accountability environment and impact and people and communities. These areas are closely aligned with our strategic vision and the Otis absolutes of safety, ethics and quality that we live by every day. During the quarter, we were honored to be recognized with several sustainability awards. USA TODAY, in collaboration with Statista, included Otis among America’s climate leaders, and Forbes recognized Otis among 200 U. S.

Companies included on the net zero leaders list for reduction of carbon emissions. Newsweek also recognized Otis among companies from 26 different countries for our environmental sustainability performance. And most recently, Time magazine named Otis among the world’s most sustainable companies for the second consecutive year. Turning to our orders performance on Slide four. Combined new equipment and modernization orders grew 4% in the quarter, driven by continued strength in modernization.

Excluding China, orders grew 14% with notable strength in The Americas and Asia Pacific. Our combined backlog remained relatively flat year over year. However, excluding China, it increased 10%. Our total backlog, including maintenance and repair, is at historically high levels, positioning us well for future quarters. New equipment orders declined 1% in the quarter.

However, excluding China, we saw robust 11% growth. For the fourth straight quarter, The Americas orders were up in the low teens. Asia Pacific also delivered strong results with order growth exceeding 20% for the third consecutive quarter, led by Southeast Asia and India. This strength was offset by continued softness in China, where orders declined by more than 20%. Note, however, that our China new equipment orders were sequentially stable in the first half of twenty twenty five, and we anticipate year over year growth in the coming quarters.

In EMEA, new equipment orders declined low single digits as strength in The Middle East was offset by weaker demand in Europe. At constant currency, our new equipment backlog declined 3% year over year, but excluding China, it grew 8%. Modernization acceleration continued as orders grew 22%, leading to our quarter end backlog up 16% at constant currency, with Americas, China and Asia Pacific each growing orders more than 20%. The modernization opportunity is compelling, driven by the aging of the 22,000,000 unit installed base. We continue to expect these aging units to drive a multiyear growth cycle across our regions.

Our service portfolio grew 4% in the quarter with contributions from all regions. China’s strong growth trajectory continued as the region grew its portfolio low teens, Asia Pacific grew mid single digit, and EMEA and Americas grew low single digits. As our global teams continue to deliver, we’re proud to share second quarter customer highlights that reflect our success in winning strategic projects through innovation, execution and trusted collaborations. In The Americas, Otis will modernize 21 elevators at the 1 America Tower in Indianapolis, expanding our long term relationship with this customer. Otis provided the original elevators for the buildings in the 1980s, modernized them in 2009 and is the current maintenance provider.

Otis will upgrade controls, doors, signals and cab finishes on the elevators. In Dubai, we continue to strengthen and grow our relationship with Daymak Properties, one of the leading luxury real estate developers. Our latest agreement to supply and install 20 Skyrise elevators at Daymac Bay 2 in Dubai Harbor brings our total orders with Daymac to 88 elevators. This includes 72 Skyrise and 16 Gen two systems across six high rise projects in the city. These orders reflect the trust Daymac places in our technology and service, and they underscore our growing footprint in The Middle East.

In China, Otis recently entered into a contract for more than 400 escalators and connected elevators to support metro and infrastructure expansion projects in Hangzhou, Changchun and Tianjin. These orders reflect our ongoing role in supporting urban mobility across key cities. And in Ho Chi Minh City, Vietnam, Otis has been selected to install and maintain Skyrise and Gen three elevator systems at The Cross, a 39 story premium mixed use development in the city’s central business district. These units will be supported by our Compass three sixty and EMS Panorama two point zero management system, delivering a modern integrated solution for enhanced passenger experience. Turning to our second quarter results on Slide five.

Otis delivered net sales of $3,600,000,000 flat on a year over year basis with organic sales down 2%. Adjusted operating project profit margin was flat versus the prior year at 17%. Excluding a $13,000,000 foreign exchange tailwind, adjusted operating profit decreased 2% with growth in service offset by a decline in new equipment. Adjusted EPS declined 1% or zero one dollars in the quarter, driven by a tough year over year comparison from an operational and tax standpoint. As I previously mentioned, EPS grew 2% in the first half of the year.

Adjusted free cash flow was $243,000,000 in the quarter and April year to date. With that, I’ll turn it over to Kristina to walk through our results in more detail.

Christina Mendez, Executive Vice President and CFO, Otis: Thank you, Judy. Starting with Service on Slide six. Service organic sales grew 4% with growth in all lines of business. Maintenance and repair organic sales grew 4%, driven by growth in our portfolio and positive price of 3% in maintenance, partially offset by mix and churn. Our repair business accelerated in the second quarter as anticipated, growing 6% organically year over year compared to 1% in the first quarter.

We are pleased with our progress. And with our backlog up 8% at quarter end, we are well positioned heading into the second half. Modernization organic sales grew 5% with notable growth in China, which increased over 20%. While modernization organic sales growth was muted, it was primarily driven by timing of several large projects, which can vary from quarter to quarter. Our modernization backlog remains strong, up 16% at constant currency at quarter end, and we expect approximately 10% growth in modernization sales for the full year.

Service operating profit of $578,000,000 increased $26,000,000 at constant currency with higher volume, favorable pricing and productivity, including the benefits from uplift, more than offsetting higher labor costs and mix and churn. Operating profit margins expanded 20 basis points to 24.9% in the quarter, making another record quarter in service margins since spin. Turning to new equipment on slide seven. New equipment organic sales declined 11% in the quarter as a strength in EMEA was more than offset by declines in China, Americas and Asia Pacific. EMEA sales grew 7%, primarily due to a strength in The Middle East, which grew greater than 20%, while Europe was up low single digits.

Asia Pacific declined low single digits, with notable strength in Hong Kong and Taiwan, offset by weakness in Korea. Additionally, growth was negatively impacted by timing of project execution in India. However, the backlog in India remains strong. Americas declined high single digits as we work through last year backlog, but in addition, backlog execution has been slower due to market concerns around global trade policy. China remained weak, declining greater than 20% as soft market conditions, a strict credit control on shipments and a declining backlog continue to impact our results.

New equipment operating profit of $68,000,000 declined $41,000,000 at constant currency, driven by lower volumes and unfavorable price and mix. Operating profit margins declined two forty basis points to 5.3%, driven by the headwinds of lower volume and regional mix that were partially offset by productivity, including the benefits from uplift and our China transformation. I will now turn it back to Judy to discuss our 2025 outlook.

Judy Marks, Chair, CEO and President, Otis: Starting on Slide eight with the market outlook. Before discussing our updated 2025 outlook, I’d like to briefly discuss our global market expectations, which are largely unchanged. We continue to expect a low single digit decline in The Americas. However, we are beginning to see trends improving sequentially. Our market outlook for EMEA is unchanged with low single digit growth.

Asia is now anticipated to decline high single digits. This is driven by mid single digit growth in Asia Pacific, offset by a low teens decline in China. Our outlook for China is now slightly lower than our beginning of year expectation due to continued softness in the market. While year over year comparisons are easier in the second half, we now believe the market will be down approximately 10% for the remainder of the year. Taken together, we expect the global new equipment market to decline mid single digits in 2025.

On the service side, we continue to expect the global installed base to grow mid single digits, driven by low single digit growth in Americas and EMEA and mid single digit growth in Asia. This growing installed base should further support growth in our maintenance portfolio and expand our service flywheel. Turning to our financial outlook for 2025. We now expect net sales of $14,500,000,000 to $14,600,000,000 a slight decline from our previous outlook, driven primarily by a lower outlook for new equipment sales. This is largely driven by the new equipment market environment in China and The U.

S. In China, market conditions have remained soft as liquidity challenges are causing a slowdown in execution of our backlog. In The U. S, continued uncertainty over global trade policies are causing project delays. That said, we have driven low teens or greater order growth in The Americas for four consecutive quarters, and our backlog remains strong there, up 5% at the end of the quarter.

This backlog positions us well as we head into 2026. And as you know, our resilient service business is relatively insulated from tariffs. This resilient business is our core earnings driver, representing approximately 90% of our total operating profit. Looking ahead, we expect our service organic sales growth to continue to ramp up through the remainder of the year. Our outlook for adjusted operating profit is unchanged at $2,400,000,000 to $2,500,000,000 up $55,000,000 to $105,000,000 on an actual currency basis, including the impact of incremental U.

S. Tariffs imposed in 2025. This is in line with our prior outlook as reduced reciprocal tariff rates for China and favorable foreign exchange rates offset lower expectations for our new equipment profit this year. Service profitability should remain strong from growth in all three areas of the business: maintenance, repair and modernization. Our outlook for adjusted EPS is unchanged at $4 to $4.1 per share, representing an increase of 4% to 7% compared to 2024.

We expect adjusted free cash flow to be between $1,400,000,000 to $1,500,000,000 for the year, which we expect to largely return to our shareholders through our dividend and $800,000,000 of share repurchases. Note, we are well on track to meet our share repurchase target, having bought back approximately $550,000,000 year to date through June. I’ll now pass it back to Christina to review the 2025 outlook in more detail.

Christina Mendez, Executive Vice President and CFO, Otis: Thank you, Judy. Moving to our organic sales outlook on Slide nine. We now expect organic sales growth of approximately 1% for the year. This is driven by continued strength in service with organic growth of approximately 5%, partially offset by a decline in new equipment of approximately 7%. Within new equipment, we have lowered our outlook for Americas to down high single digits and Asia to down low teens due to the macroeconomic concerns Judy previously noted.

Within Asia, we expect a strong growth in Asia Pacific, offset by a greater than 20% decline in China. We continue to expect EMEA to grow mid single digits for the year. Within service, we continue to expect growth in all segments through the remainder of the year. Maintenance and repair is expected to grow approximately 5%, driven by portfolio growth and pricing, partially offset by mix and churn. We saw solid acceleration in our repair revenue in the second quarter, and we expect continued acceleration through the second half.

In modernization, we are anticipating approximately 10% organic growth as we execute our strong backlog. Turning to Slide 10 to provide an update on tariffs. While circumstances remain fluid, our anticipated tariff exposure has meaningfully declined from expectations in April. This is driven by more favorable reciprocal tariff rates as well as our successful mitigation strategies. Given these changes, we now expect an approximately $25,000,000 to $35,000,000 negative impact to our 2025 earnings, net of our mitigation efforts.

Note that this impact is primarily expected in the second half as the year to date impact has been minimal. As a reminder, our tariff exposure is primarily in our backlog as we have adjusted contract terms and pricing for the current environment. Therefore, after execution of the backlog, the impact of the new tariffs on our results should be offset by pricing and contract language. Turning to our financial outlook at Slide 11. We currently expect adjusted operating profit to grow $55,000,000 to $105,000,000 on an actual currency basis, including the impacts of tariffs.

This growth is driven by the strength of our Service segment as well as cost savings from Uplift and our China transformation. Adjusted operating margin is expected to expand 30 basis points, driven by expanding service margins and mix, offset by declining new equipment margins from tariffs as well as the flow through of last year’s backlog and regional mix. Adjusted free cash flow is now expected to be between $1,400,000,000 to $1,500,000,000 for the year. The decline from our previous forecast is primarily driven by our reduced outlook for new equipment sales as well as the impact of the mix. As new equipment sales are more favorable to working capital, we continue to anticipate approximately $800,000,000 of share repurchases for the year.

Moving to the 2025 EPS bridge on Slide 12. Our adjusted EPS outlook for the year remains $4 to $4.1 per share. This represents 4% to 7% growth compared to the prior year, driven by a strong operational growth from our Service segment. The new equipment segment remains a headwind due to soft economic conditions in China and the impact of global trade policy in The U. S.

Favorable foreign exchange rates and a lower share count are expected to offset the impact of tariffs and a higher interest expense. And while conditions remain challenging for our new equipment business in the near term, our U. S. Backlog is growing and China orders are expected to stabilize in the coming quarters. And furthermore, the resiliency of our service business continues to drive earnings on the back of mid single digit top line growth and continued margin expansion.

We are also continuing to execute our Uplift and China transformation initiatives, which will allow us to better serve our customers, while driving $240,000,000 of run rate cost savings by year end. We have good line of sight to deliver our targeted savings and as uplift is approaching the end of the program in the second half of the year. We are making good progress with our China transformation. And as I previously mentioned, we are raising our cost savings target to $40,000,000 due to additional restructuring actions underway. Looking at the third quarter, we expect new equipment organic sales growth roughly in line with our full year guidance with sequentially lower margins in the quarter.

This margin pressure is due to lower volumes that will be more acute in the third quarter. This is due to the execution of cost mitigating actions such as a temporary furlough of some of our production facilities. Service organic sales are expected to ramp to around 5% and we anticipate solid year over year margin expansion with positive contribution from uplift as we execute the last wave of the program. Taken together, we expect the third quarter adjusted EPS growth of around 5% followed by a strong fourth quarter to deliver 6% full year growth at the midpoint of our guide. With that, I will kindly ask Tina to please open the line for questions.

Thank

Conference Operator: And our first question comes from the line of Jeff Sprague with Virtual Research. Please go ahead.

Jeff Sprague, Analyst, Virtual Research: Hey. Sprague here at Virtual. Good morning, everyone.

Judy Marks, Chair, CEO and President, Otis: Hi, Jeff.

Jeff Sprague, Analyst, Virtual Research: Hi. How are you doing? Judy, I I wonder if you could just maybe unpack service growth a little bit more for us. And the spirit of my question is, I think we’ve got two quarters in a row here now where service revenue growth organically is equal to portfolio growth, where historically, you know, revenues outperformed, portfolio growth. So you mentioned churn and mix.

I guess I’m particularly interested in churn in this kind of economic period of uncertainty. Are you seeing leakage in retention? Or really what’s going on underneath the surface there?

Judy Marks, Chair, CEO and President, Otis: Yes. Thanks, Jeff, and good morning. Apologies about your name. So listen, the service is continuing to perform. We’re going to be maintenance and organic sales were up 4%.

It was driven by 4% growth in the portfolio. We did have positive service pricing. Like for like pricing increased three points in the quarter. That’s a little lower than we had in previous years, but inflation is not as high in certain parts of the world. In the developed mature markets, the service pricing performance was really excellent.

EMEA was up low single. Our Americas team drove mid single digit pricing, so really pleased with that. The main changes, the two elements I’d call your attention to this quarter versus last quarter, Repair sales snapped back. They were 1% in first quarter. This quarter, they’re 6%.

And we anticipate incrementally that to increase in the third quarter and even more in the fourth quarter. Our repair backlog is up 8%. So we’ve got good backlog to work on as we look through the remainder of the year. Mod revenue was down to 5%, and that was a combination of a lot of major projects that we had won. You saw our mod orders were up 22%, really phenomenal performance, three of our four regions up 20%.

And the U. S.-Canada team, our North America team, mod orders were up over 50% this quarter. So they have continued to drive significant growth. Now we’ve got to convert it. It’s a fair expectation, and we have the expectation that, that will grow to 10% over the next two quarters for mod revenue because our backlog is at 16%.

So it was a combination of major projects and some other items, but it’s not a resourcing issue with us. So that’s why we took the guide, the outlook down to 5% for year end. We’re at 4% through the first half. You’re going to see an incremental step up as we go through third quarter, and then you’ll see even more in fourth quarter. I’ve got full confidence in the service flywheel.

We’re seeing it everywhere. We’re seeing the portfolio growth sustain itself at 4% now for almost for multiple years. And I think you’re going to see that I know you’re going to see that come through in the next two quarters. The operating profit shows that service impact. As Christina mentioned, we had a record since spin, 24.9% operating margin in service.

And that will continue to drive our growth in operating profit as we go through. And we’ve had operating profit now in service. This is the twenty first straight quarter. So you’re going to continue to see that. But we know it’s a growth story on top line.

We own that, and you will see that as we go through the second half of the year.

Jeff Sprague, Analyst, Virtual Research: Thanks for that. But just to be clear then, I mean, if units are up four and service price is up three, the fact that organic revenues are only up four is a function of new equipment mix, project related stuff you’re talking about, or is it or is it retention?

Judy Marks, Chair, CEO and President, Otis: No. It’s the retention actually was slightly better in the second quarter than the first quarter. But it’s a mix and churn effect because as the portfolio grows, the mix is it’s growing more in the less mature markets, which have lower contribution, especially in China where we’re growing in the teens. So it’s really a mix and churn effect there. And then as you know, even with the units that when we lose them and we don’t retain them and replace them with a recapture, that does come at a lower margin and a lower price.

Jeff Sprague, Analyst, Virtual Research: Right, right. Okay. Thanks. I’ll leave it there. Good luck.

Conference Operator: Thanks. Our next question comes from the line of Nigel Coe with Wolfe Research. Please go ahead.

Nigel Coe, Analyst, Wolfe Research: Thanks. Got my name right. That’s encouraging. Good morning. Thanks for the question.

Just on retention, Judy, I know you said it improved slightly Q over Q. Maybe you could maybe just put a final point and quantify that. But I’m just curious really on it sounds to me like you’re pointing to new equipment orders inflecting in The Americas. Just given the continued drag in multifamily, it’s surprising to see this. I’m curious what you’re seeing in pockets of growth in The Americas.

And then maybe just touch on China as well. I think you said expect year over year growth in the coming quarters. So just curious if that’s just easier comps? Or are we seeing some benefit from the stimulus efforts in China?

Judy Marks, Chair, CEO and President, Otis: Yes. So Nigel, we’ll provide all the retention data once a year. So you’ll that part I won’t elaborate on. In terms of The U. S, as I said, fourth strong quarter with teens growth.

North America was up 15% new equipment orders this quarter. We saw some contraction in Latin America, Brazil, Mexico, Chile, but North America is so much more of our business as you know in The Americas. Really strong performance in infrastructure. We saw resi was flat this quarter. So when we talk about multifamily, our orders were flat year over year.

So I view that actually as positive versus the kind of pullback we had seen in multifamily over the past few quarters, and then commercial was down. And so again, it was a strong infrastructure job, a lot of major projects, and a lot of volume business too. And I couldn’t be really more pleased with our performance in North America. Really, really strong four quarters in a row after almost six quarters where we had orders contraction, which is the backlog we’re living through in new equipment in North America. So that’s strong.

In China, listen, the new equipment market, it does remain weak, down 15% first and second quarter, and we see it improving to 10% in the second half. The comps will help, but there was not a single vertical in the second quarter that grew nor a single tier city that grew in the second quarter. Tier one did better than the others, but none of them grew. So the best verticals in China for the second quarter for us were infrastructure and industrial buildings, which are becoming more stable. But both commercial and office were down double digit, and resi was down high teens to double digit.

So that market is still stressed. But again, now it’s now it’s about sequential and looking at how we can perform quarter over quarter. We focused in new equipment in China really on value, really two things. Value in terms of because it’s very competitive and the prices are very, very, very low, so we focus on value, and then we focus on our ability to retain it in our service portfolio. And where there was other opportunities for margin or for volume, where we weren’t going to get any margin or get the service attachment rate, we walked away from those.

So I think our team is being very disciplined to be in a much better place in terms of our backlog. And you look at our new equipment backlog for the company. So our new equipment orders decreased 1%. But if you take out China, the other three regions were up 11%. If you look at our backlog for new equipment, even though it declined 3%, if you take China out, we’re up 8%.

So I’m actually very encouraged for rest of world ex China. China stabilizes, and Rest of World is growing now almost our backlog is up high single digit at 8%.

Nigel Coe, Analyst, Wolfe Research: Okay. That’s great. Thanks, J. D. That’s great color.

And then my quick follow on is, I think, for Christina. So it seems like your 3Q and it points like $1 per share of earnings. I think the midpoint implies a step up in earnings from 3Q to 4Q. That would be quite unusual. So just wondering how we should be phasing thinking about the second half and thinking about that step up in earnings in

Julian Mitchell, Analyst, Barclays: the fourth quarter?

Christina Mendez, Executive Vice President and CFO, Otis: Yes. Nigel, thank you very much for the question. So let me give you some color on Q3 outlook, but also the calendarization between Q3 and Q4. So starting with Q3 on the new equipment side, we expect revenues to be in line with the midpoint of the guide around minus 7%. With margin sequentially down, margin will be around 3% for new equipment in the quarter.

The reason being is because we are anticipating the volumes drop in the second half and we are executing cost mitigating actions. Among others,

Judy Marks, Chair, CEO and President, Otis: we will

Christina Mendez, Executive Vice President and CFO, Otis: implement furloughing some production facilities. That will mean that the volume shortfall will be more acute in Q3 and will come back to regular level in Q4. On the service side, however, as Judy said, we accelerating execution both on repair and modernization. They are going to be around 8% growth in the quarter. And we have very good line of sight to execute repair because our ending backlog in was around 8%.

So it’s the execution of the backlog. And margin is going to go up sequentially too. We also have an easier compared to Q3 last year. So total operating profit will be around 2% up and EPS will be around 5% up. That means that for the calendarization of EPS growth in the year will be $03 first half, 0.5 Q3 and around $0.14 Q4.

So it is kind of a back loaded profile. And the growth in Q4 is based upon three areas. One is on the new equipment side, we expect a better stabilization in China in terms of shipments coming from better liquidity conditions in the market, but we also have an easier compare in China versus Q4 last year. So new equipment contribution in Q4 will be back to normal levels around $70,000,000 in the quarter. And on the service side, we expect an additional acceleration of repair and mods will be around low mid teens in the quarter.

That implies for repair a ramp up in orders, but also ramp up in execution. And we do have the resources. You may recall that last year, we hired around 2,000 mechanics. Those mechanics are productive now. And we are also this year selectively hiring in those countries where we see further growth potential of the backlog.

And on the Mod side, it will be around 15%. This is based upon the acceleration of Mod in China on what we call the bond projects. These are the governmental subsidies. And you may recall that last year, we had a similar acceleration because the subsidies come to an end at the end of the year, so they need to be used. And this year, we are planning to do the same with a bigger scale because the program this year is bigger.

It’s around 100,000 units versus 40,000 units last year. The acceleration in Q4 is based upon new equipment, repair and mode.

Nigel Coe, Analyst, Wolfe Research: Great. Thanks, Christine.

Conference Operator: Our next question comes from the line of Nicole DeBlase with Deutsche Bank. Please go ahead. Yes, thanks. Good morning.

Judy Marks, Chair, CEO and President, Otis: Good morning. Welcome, Nicole.

Nicole DeBlase, Analyst, Deutsche Bank: Thank you so much. Maybe we could just start with the China transformation savings. You guys are very clear about the what you’re adding. But I guess what does that mean for carryover savings into 2026? Is there anything that we should be thinking about next year?

Christina Mendez, Executive Vice President and CFO, Otis: Yes. So the China transformation savings at the beginning of the year, we guided $20,000,000 in GR, dollars 30,000,000 run rate. We are executing according to the plan. We have $5,000,000 in the first half of the year and the remaining $50,000,000 will come in the second half. But because of the more acute decline of volumes, we are taking additional cost reduction actions.

That’s why we have increased the run rate from $30,000,000 to $40,000,000 So this is going to be an incremental savings for 2026. And when you step back and you look at our overall picture of new equipment in the year, new equipment sales are going to decline around $400,000,000 versus $450,000,000 last year. This is a very similar decline. In terms of contribution, last year, decline was $44,000,000 This year, excluding tariffs, this is an extraordinary effect, we are going to decline $60,000,000 with an incremental decline of $15,000,000 But we are facing new headwinds. One is the price because price in the backlog in China became negative last year as we deteriorated prices, the market deteriorated prices.

This is a headwind of around 100,000,000 BPY this year. And the second one is commodities that last year was $20,000,000 positive. This year is flat. But we are only deteriorating incremental $15,000,000 So this shows you all the cost actions we are taking in new equipment that are the uplift program, but also the transformation of China and the usual productivity, material productivity actions. So there is a lot of cost mitigation in the new equipment side.

Judy Marks, Chair, CEO and President, Otis: Nicole, let me put this in kind of the business perspective versus just the financials. We made a major organizational transformation change in China as we started the year. We went from basically two separate, almost wholly operating companies with very different brands to being more laser focused on new equipment and modernization together in China for good rationale and service. So we now offer both those brands and service, and we offer both those brands and new equipment and modernization. But now we have the ability to optimize, to have our agents and distributors and our direct sales folks make us more customer centric.

So we’re going through this transition. And at the same time, obviously, conditions are a headwind in new equipment, especially. Service is growing nicely. Modernization is growing very nicely in China, over 20% mod growth in China, over mid teens portfolio growth in service. So we are preparing while we’re taking this cost out, we’re preparing for and implementing our new China approach to market, which will position us not just for the fourth quarter of this year to get to that stabilization point, but for ’twenty six and beyond to go to market in a different way than we have in the past twenty years.

Nicole DeBlase, Analyst, Deutsche Bank: Okay. Thank you. That was a very comprehensive answer. Appreciate that. And then just maybe a quick follow-up.

The discussion around 3Q versus 4Q cadence was really helpful. Just one follow-up to that. What about the cadence of free cash flow? Does that look more akin to normal seasonality? Or will it look similar to the earnings profile?

Yes.

Christina Mendez, Executive Vice President and CFO, Otis: So cash flow in the second half of the year is going to be at the level of the second half in 2024. So we have a good line of sight to deliver as we delivered last year. Cash flow is weaker than what we expected, but it’s primarily driven by the business mix. So we have seen new equipment deteriorating further and service remaining strong. And as you know, new equipment is favorable in working capital because of the advanced payments, but also because of billing according to milestones.

And for example, in the case of China, we don’t ship unless we collect. On the other side, in service, we bill after rendering the service. So this is a headwind in working capital, but it’s a temporary one as we stabilize new equipment. And for the second half of the year, we have good line of sight to deliver the cash flow. There is another component related to our uplift transformation.

We are transforming our processes while outsourcing our collections areas to a third party. The transition is progressing very smoothly. We are collecting with disruption in the business, and we are positive that as we end up the transition towards the end of the year, the support of our new partner is going to help us accelerate and optimize collections even further.

Conference Operator: Thank you. I’ll pass it on. Our next question comes from the line of Steve Tusa with JPMorgan.

Steve Tusa, Analyst, JPMorgan: Hi, good morning. Can you guys just talk about how you’re set up into like just mechanically what the backlog would suggest for next year in China? And I’m sorry, did you say that the orders there are looking to improve sequentially now? I didn’t quite catch that in the beginning on any.

Judy Marks, Chair, CEO and President, Otis: Yes. The orders will improve sequentially in China. Backlog for is actually let me just take you through the whole world in terms of backlog and how they’re doing. If you look at let’s start in The Americas, Steve. Our backlog as we ended last year was minus 4%, which is obviously where we saw some of the challenges in the revenue this year on new equipment, especially in North America.

We’re ending this quarter up 5% there. So that plus the orders we anticipate through the rest of the year position us really well going into 2026%. Asia Pacific, really strong backlog, double digit. So we’re really pleased there. And EMEA will be fine as we enter, especially based on The Middle East and Spain and some other locations.

So it leaves us with China backlog. And that’s why we’ve been talking a lot ex China today. China was about 12% of our global revenue this year, 10% or this quarter, 10% last quarter. So it’s still now that smaller contribution. So we’re watching it closely.

We’re rightsizing our costs to the best of our ability. But even with the mod backlog will be up, the service backlog will be up going into next year at China, but the new equipment backlog will be down.

Steve Tusa, Analyst, JPMorgan: Okay. So I mean that just sounds like on a like from a profile perspective, is China enough of a drag next year to completely offset what’s happening in the other regions?

Judy Marks, Chair, CEO and President, Otis: Yes. We’re not to guide for next year yet, Steve, but the other regions are really growing strongly.

Steve Tusa, Analyst, JPMorgan: Okay. Great. Thanks a

Judy Marks, Chair, CEO and President, Otis: lot. Thanks.

Conference Operator: Our next question comes from the line of Rob Wertheimer with Melius Research.

Rob Wertheimer, Analyst, Melius Research: Thanks. Good morning.

wanted to clarify, hey, demand in North America, I mean, what you just referenced backlogs being strong. I think earlier in the call, kind of talked about some project delays. You mentioned recovering multifamily. So I wonder if you could just square that circle. Thank you.

Judy Marks, Chair, CEO and President, Otis: Sure. Well and you may have seen the the June ABI data that came out this morning, which was down a little from May, but inquiries being up. Dodge momentum’s up in June. And so what we’re seeing for the segment, we stayed at down low single. But I would tell you as we kind of came through the end of the second quarter, we are starting to see some nice positive opportunities when we look at proposal activity and pending awards as well in terms of North America.

The uncertainty we talked about was for the current backlog we’re executing at job sites. So our backlog, as I said, was down as we came in this year, minus four in North America on new equipment. We’ve been shipping from our Florence, South Carolina facility. We’ve been ready to install, but some of the job sites, have slowed down a little. And, you know, I can’t it’s not our labor or but there are just some, just some general unease with the tariffs and what’s been going on on the more macro project level.

We’re not seeing that slowdown in our orders by any means with four consecutive orders in the teens in North America, 15% in new equipment orders really this quarter. So everything we’re seeing locally, which is we’ll look at the data. But what we’re hearing, again, is as the tariffs are getting more defined and settled, there’s more excitement. We all are waiting for interest rates and whatever will happen from the Fed to happen, obviously, in the second half of this year. There are a lot of jobs where the math works with that next small interest rate decline.

So we bid them. We’re waiting to hear. Our team is prepared not just to win them, but to perform. And I think we’ve seen just really strong performance there.

Rob Wertheimer, Analyst, Melius Research: Very helpful. Thank you.

Conference Operator: Your next question comes from the line of Mitchell with Barclays. Please go ahead.

Julian Mitchell, Analyst, Barclays: Hi, good morning. Maybe just wanted to start with a broader question on free cash flow. So I guess based on the updated dollar guide for this year, you’ve sort of got the same free cash flow, it looks like for in dollars for four years running now despite over that period sort of mid single digit sales growth, mid single digit plus net income dollar growth. So just trying to understand, not so much in Q2, but what’s going on more broadly on free cash flow margins or conversion? Is something changing in industry dynamics around payment terms or something competitively?

Anything you’d call out there?

Christina Mendez, Executive Vice President and CFO, Otis: No. Thank you for the question, Julian. And it’s what I said before Nicole. So it’s a matter of the business mix that is changing. We and the working capital of new equipment is more favorable than in service.

And in the last years, new equipment has been declining because of the situation in China. In 2025, the situation is a little bit more acute because on top of China, we have the decline of U. S. In sales driven by the ending backlog last year that was negative plus what Judy mentioned, the job sites are slightly delayed because of the uncertainty about about tariffs. But this is just a temporary effect.

So service is growing strongly. Service collects, but we collect later. It’s a matter of time. So by when we stabilize new equipment and we have line of sight because The U. S.

Backlog is growing. It’s growing 5% in Q2. So U. S. Will stabilize and China will bottom out.

And we also mentioned that orders in China are expected to stabilize towards the end of the year. And on the other side, we will collect in service. So we our business fundamentals remains unchanged. Our business models generates cash flow conversion of 100% plus because of our low capital intensity, because of our low R and D, it’s just a matter of the temporary shift

Judy Marks, Chair, CEO and President, Otis: of

Christina Mendez, Executive Vice President and CFO, Otis: the mix until we stabilize new equipment.

Judy Marks, Chair, CEO and President, Otis: Yes. Julian, there’s no structural change in payment terms across the industry. Everything remains strong. And I just want to give a shout out to our colleagues who do such a great job in execution and then collect that cash that allows us to be able to share that cash with our shareholders. And you saw we’re committed to the $800,000,000 in share repurchase and to our dividend.

And I think we’ve been we’re really good stewards of giving that capital back to our shareholders.

Julian Mitchell, Analyst, Barclays: That’s helpful. Thank you. And then just a shorter term question on the operating margin dynamics. Just to understand, so in the first half of the year, the operating margin is up 20 bps or so and including the Q3 guide, not much. Then you’ve got this step up for the whole year guided of including tariffs sort of 30 bps or so.

So that margin step up is happening, I suppose, despite a bigger tariff headwind later in the year. Maybe just help us understand sort of what’s the puts and takes there around sort of the degree of tariff margin headwind in the back half or Q4 and what all those countervailing factors are to offset that?

Christina Mendez, Executive Vice President and CFO, Otis: Yes. And Julian, you are right. So the tariff impact is going to be in the second half of the year. We are guiding the midpoint of $30,000,000 Year to date, we have had $5,000,000 $6,000,000 in the P and L. So this is going to be a headwind that we have quantified in around 10 basis points, 20 basis points of margin.

But on the other side, the business mix improves in the second half of the year because we are accelerating very strongly repair and modernization, again, on the back of a strong quarter end backlog growth. And as you know, service margins are higher, so this is going to be a tailwind. But in addition, we are finalizing the execution of our uplift program. And we have very good line of sight because most of the actions are now to be executed. They are progressing on plan.

And also China, as I mentioned before, the $20,000,000 in GR savings, we have captured $5,000,000 in the first half, so the remaining comes in the second half. So essentially, it’s a combination of business mix, productivity and the flow through of the uplift and China transformation savings.

Judy Marks, Chair, CEO and President, Otis: Yes. Let me just reinforce our confidence in the service business in the second half of the year. We have the backlog. We have the resources, as Christina said, and now we execute. And you will see that make the difference and drive the guide and put that will take care of the tariff impact, and it will get us again back to the outlook that now we’ve reconfirmed twice.

Julian Mitchell, Analyst, Barclays: Great. Thank you.

Conference Operator: Our next question comes from the line of Chris Snyder with Morgan Stanley. Please go ahead.

Rob Cortaro, Vice President of Investor Relations, Otis0: Thank you. I wanted to follow-up on the prior commentary around margins into the back half. So I guess, is service mix getting more favorable into the back half versus q two? Because it seems like much of the uplift in growth from the four back to, I guess, something like 6% is driven by mod, which I thought would have been more dilutive to Service margins? Thank you.

Any color on that?

Judy Marks, Chair, CEO and President, Otis: Yes. I mean, the simple answer and the candid answer is it’s actually more driven by repair step up, which again, we have 8% backlog going into the third quarter. There will be additional repair orders added. The demand we’re seeing there is strong everywhere in the world, all four regions, EMEA, Asia Pac, China and The Americas. And that model will pick up too, but the relative contribution, both in sales and in profits, will come from repair.

Rob Cortaro, Vice President of Investor Relations, Otis0: Thank you. Appreciate that. And then maybe just on Obviously, orders have been pretty good, not converting at the rate expected. I guess, what do you think the market needs to see to start converting those orders? Is it visibility around tariffs?

Is it interest rates? Any thoughts on that? Thank you.

Judy Marks, Chair, CEO and President, Otis: Yeah. No. We it’s a great question, Chris. We do convert well. The challenge The Americas, especially North America, is our longest lead time from when we book an order to when we get to a job site.

There’s a combination of reasons from permitting to just general construction challenges in The US. So we’ve been running through eighteen months ago of backlog. And now we’ve got four straight quarters of orders improvement, which you’ll see in ’26 really start stepping up the revenue for North America. So it’s that part’s not an issue. What we’re just seeing is a bit uncertainty right now on current job sites from the backlog that we’re literally not just delivering, but installing.

And it’s just, you know, as each job takes another week or two longer than anticipated, we’re not that impact on the margin side, on the labor side, because we can move our crews around, but we are seeing it on when we realize the revenue.

Rob Cortaro, Vice President of Investor Relations, Otis0: Thank you. I appreciate that.

Judy Marks, Chair, CEO and President, Otis: You bet.

Conference Operator: And our final question comes from the line of Joe O’Dea with Wells Fargo. Please go ahead.

Rob Cortaro, Vice President of Investor Relations, Otis1: Hi, good morning. Can just expand a little on where the furloughs are occurring? How long you expect those to be in place at this point?

Judy Marks, Chair, CEO and President, Otis: Yes. So they’re temporary, let me be clear. I mean, measured in weeks. And you’re mainly seeing them where we’re seeing our new equipment challenges in terms of revenue, North America and China.

Rob Cortaro, Vice President of Investor Relations, Otis1: Got it. Makes sense. And then just in terms of order expectations as we get into the back half of the year because first half of the year pretty stable with total orders down one organically. We do get comps that move around quite a bit. And so just any color on how you’re thinking about order activity in the back half of the year, if you could revisit?

I think you gave a little bit on China, that in particular, but then also Americas and EMEA, how you’re looking at order trends there.

Judy Marks, Chair, CEO and President, Otis: Yes. Let me start with modernization, then I’ll turn kind of new equipment over to Christina, and we’ll pair up on this one as partners. Listen, the modernization order strength will continue, and you will see that continue globally. And I think you’ll actually see more strength coming out of EMEA relative to how they performed in the first half. They had a challenging second quarter, but it was due to a tough compare to a major modernization they won second quarter last year.

So we expect to be talking about EMEA mod orders becoming far more positive. But the other three are on good trajectories to continue at this rate. We’ve always believed that mod orders, because of the market demand we’re seeing, China will be up far more than 20% because you’ll see this we call it this bond mod, this government stimulus mod at 100,000 units available that they have to spend the money by year end. You’ll see that pick up well beyond 20% that we saw last quarter. And as I said, Americas had a phenomenal quarter with 50% plus in North America.

I don’t expect them to sustain that rate, but I do expect them to be in the teens plus for mod. And APAC has strong mod growth as well. They were 20% plus and they should be at least teens plus. Christine, I’ll let you talk to new equipment.

Christina Mendez, Executive Vice President and CFO, Otis: Yes. So on the new equipment side, we have talked about China. China has been sequentially stable in the first half of the year. We expect a ramp up in the second half, PPY, back to flat to even slightly positive in orders. The reason for that is, of course, the easier compare, but also the fact that we have been working on the transformation initiatives of new equipment in the first half of the year in consolidating the two brands, consolidating agents and distributors.

So we are now in very good shape to start getting the results in terms of orders. On the Americas side, Americas has had a super strong performance since the second half of last year, has been growing mid teens of above. For the second half of this year, we expect the growth to slow down a little bit, but it’s just a matter of the compare because they started growing very strongly last year. So we expect them to be sequentially stable, but the growth with a slowdown. And then on EMEA, EMEA is expected to be kind of low mid single digit up for the year.

The reason for that is we have a very strong growth in Middle East. There are certain markets in Europe that are more muted. I’m talking about Central Europe, Western Europe or the North Of Europe. But we are also taking selective investments in those markets where we see possibility to grow sales segment, but always with a prospect of converting into service afterwards.

Rob Cortaro, Vice President of Investor Relations, Otis1: That’s great color. Thank you. I

Conference Operator: will now turn the call back to Judy for closing remarks.

Judy Marks, Chair, CEO and President, Otis: Thank you, Tina. While we face near term challenges in our new equipment business, we remain confident in our long term outlook. The global installed base continues to expand, while the population of aged units presents an attractive and growing opportunity for modernization. Together, strong fundamentals should continue to drive our service flywheel. As we look ahead, we’re confident our service driven business will continue to deliver attractive long term shareholder returns.

Thank you for joining us. Thanks to our Otis colleagues and thank you to our investors.

Conference Operator: Thank you again for joining us today. This does conclude today’s conference call. You may now disconnect.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.