Otis cuts full-year profit outlook on global weakness

Otis Worldwide (OTIS) topped Wall Street's revenue expectations for the second quarter as robust growth in its higher-margin service business helped offset continued weakness in new equipment. The elevator and escalator maker lowered its full-year earnings outlook.

Shares of Otis (OTIS) were little changed in premarket trading Wednesday. Before the earnings report, the stock had fallen about 18% so far this year.

The company reported second-quarter revenue of $3.86 billion, up 7% from a year earlier and above analysts' consensus estimate of $3.75 billion. Adjusted earnings were $1.01 a share, matching Wall Street expectations.

Net income rose to $428 million, or $1.12 a share, from $393 million, or $0.99 a share, a year earlier.

Otis (OTIS), whose best-known products include Otis elevators, escalators and modernization services, said organic sales increased 6% during the quarter. Service revenue climbed 11%, including 9% organic growth, while new equipment revenue was essentially flat as demand in the Americas was offset by continued weakness in China. Modernization orders rose 9% at constant currency and modernization backlog increased 26% on the same basis.

Chair, CEO and President Judy Marks said, "Otis delivered a solid quarter, with net sales up 7%, supported by growth across all Service lines and sequential improvement in New Equipment trends."

Service remains the growth engine

Service segment revenue increased to $2.58 billion from $2.32 billion a year earlier, fueled by a 24% jump in organic modernization sales and 6% organic growth in maintenance and repair. Segment operating profit rose to $599 million, although margins narrowed as the company continued investing in service quality and growth initiatives.

New equipment revenue was $1.28 billion, essentially unchanged from a year ago. Organic sales slipped 1% as roughly 10% growth in the Americas and modest gains in Asia Pacific were offset by a steep decline in China and weaker demand in Europe, the Middle East and Africa. Segment operating profit fell to $40 million from $68 million as lower volume, pricing pressure and unfavorable mix weighed on profitability.

Guidance lowered

Otis (OTIS) maintained its full-year revenue forecast at $15.1 billion to $15.3 billion, roughly in line with the $15.12 billion analyst consensus. The company continues to expect organic sales growth in the low- to mid-single-digit range, with organic service sales increasing at a mid- to high-single-digit rate and new equipment sales ranging from down low single digits to flat.

However, the company reduced its adjusted earnings forecast to $4.01 to $4.05 a share from its previous outlook of $4.20 to $4.24 issued in April. The new range falls below the Wall Street consensus estimate of $4.19 a share.

Otis (OTIS) also projected adjusted operating profit of about $2.4 billion and adjusted free cash flow of $1.50 billion to $1.55 billion.