Otis Worldwide Corporation ((OTIS)) has held its Q4 earnings call. Read on for the main highlights of the call.
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In the latest earnings call, Otis Worldwide Corporation presented a balanced sentiment, highlighting both its strengths and challenges in the market. The company demonstrated robust service performance and successful strategic initiatives like the UpLift program, yet faced notable challenges in the China market and declines in New Equipment orders and profits.
Strong Service Performance
Otis Worldwide’s Service segment showcased impressive growth, expanding by 7.8% in the fourth quarter and contributing to 93% of the overall operating profit in 2024. The maintenance portfolio’s consistent growth of more than 4% for the third consecutive year underscores its stability, with total units reaching 2.4 million.
Modernization Growth
Modernization orders saw a significant 18% increase in the fourth quarter, bolstering the backlog by 13% at constant currency. The Asia Pacific region led this growth with over 20% expansion each quarter, reflecting a strong demand for modernization.
Adjusted Free Cash Flow
The company reported a record-breaking $682 million in adjusted free cash flow for Q4 2024, driven by efficient collections and net working capital reductions, marking the highest quarterly result since its spin-off.
UpLift Program Success
The UpLift program emerged as a strategic highlight, poised to deliver $200 million in annual run-rate savings by the second half of 2025. In 2024 alone, approximately $70 million in savings were realized.
Positive Developments in Americas and Asia Pacific
Excluding China, Otis saw an 11% increase in New Equipment orders, with the Americas experiencing mid-teens growth in Q4 and Asia Pacific exceeding 20%, indicating strong regional performance.
ESG Recognition
Otis’s commitment to ESG was recognized with a gold rating from EcoVadis for the third consecutive year, showcasing the company’s alignment of strong ESG initiatives with its business strategy.
Decline in New Equipment Orders
The company faced a 4% decline in New Equipment orders in Q4, primarily impacted by China’s challenging market conditions, where orders plummeted by more than 20%.
China Market Challenges
In Q4, China witnessed a greater than 20% decline in New Equipment sales, with a backlog down by mid-teens due to continued soft demand. The market is projected to decline approximately 10% in 2025.
New Equipment Operating Profit Decline
Otis reported a $24 million decrease in New Equipment operating profit at constant currency for Q4, accumulating to a $44 million decline for the full year, attributed to lower volume and an unfavorable mix.
EMEA Weakness
The EMEA region reported high-single-digit declines in New Equipment orders for Q4, particularly in Western Europe, despite a 3.7% increase for the full year.
Forward-Looking Guidance
Looking forward, Otis aims to capitalize on its service-driven business model to enhance margins further. The company expects to achieve $200 million in annual run-rate savings from the UpLift program by 2025’s second half. Despite the challenges in China, Otis maintained its new equipment market share at 20% and reported an 8.2% growth in adjusted EPS.
In conclusion, Otis Worldwide Corporation’s earnings call painted a mixed picture with strong service performance and strategic initiatives juxtaposed against challenges in the new equipment sector, particularly in China. The company remains focused on leveraging its service-driven model and strategic programs to navigate these headwinds and drive future growth.
