Strong Fourth Quarter Performance by Otis Worldwide in 2023 Strong Fourth Quarter Performance by Otis Worldwide in 2023

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By Ronald Tech

Otis Worldwide (NYSE: OTIS) closed its fourth quarter of 2023 with an impressive performance, signalling confidence in its service-driven business model and strategic directives. Amid macro challenges, the company exhibited strong organic sales growth in all regions, driven by a robust service segment. Judy Marks, CEO, credited this achievement to the hard work and commitment of Otis Worldwide’s global workforce in maintaining operational excellence. The growth in maintenance portfolio and adjusted EPS is a testament to the company’s resilient performance, defying medium-term guidance. This sets a promising tone as the company enters 2024, projecting strong sales growth in new equipment and modernization business with good visibility on new equipment sales, despite an uncertain macro environment. Otis also emphasizes its progress in Environmental, Social, and Governance (ESG) goals which underpin its commitment to aligning safety, ethics, and quality with strategic imperatives.

Positive Organic Sales Growth and Sustainable Cash Flow Management

In 2023, Otis Worldwide recorded total organic sales growth of 5.6%, with service growing at an impressive 7.7%. Notably, the maintenance portfolio achieved a record high growth of 4.2%, surpassing 2.3 million units. The company also accomplished strong low-teens adjusted EPS growth for the year, reinforcing its financial prowess. Additionally, the company generated approximately $1.5 billion in adjusted free cash flow, demonstrating prudent cash management practices. As of a summary the company returned approximately $1.35 billion of cash to shareholders through dividends and share repurchases, underpinning its dedication to rewarding shareholders and sustaining their trust.

Amid Macroeconomic Challenges, Otis Worldwide Gains New Equipment Market Share

Otis Worldwide navigated macro challenges to achieve 50 basis points of new equipment share gain and strong new equipment backlog, which grew by 2%. Despite the decline in new equipment orders by approximately 8%, the company maintained a competitive edge and delivered quarter-over-quarter acceleration in all regions. This performance underscores the company’s resilient position in the market and its unwavering commitment to driving innovation in customer service. Evidently, the company continues to focus on embracing digital transformation in elevators platforms, ensuring customers receive advanced and convenient services.

Promising Outlook for 2024: Strategic Initiatives and ESG Commitment

As the company enters 2024, it remains focused on executing growing new equipment and modernization backlogs, supported by a maintenance unit growth of over 4%. Otis Worldwide is also optimistic about the advancement of its Environmental, Social, and Governance (ESG) goals, which are aligned with its business strategy. The company’s commitment to setting near-term science-based greenhouse gas reduction targets and its aspiration to have these targets evaluated by the science-based targets initiative, underscores Otis Worldwide’s proactiveness in contributing to a sustainable future.


Otis Elevator Company Delivers Strong Global Performance and Strategic Expansion

Expanding Global Presence

Otis Elevator Company has made significant advancements in its global portfolio growth, with a continued focus on innovation and strategic expansion. The company has demonstrated robust geographic diversification, achieving double-digit portfolio growth in China, mid single-digit growth in Asia-Pacific, and low single-digit growth in the Americas and EMEA. This acceleration in portfolio growth has fortified Otis’ position as the global leader in elevator and escalator solutions.

Pioneering Modernization Value

Otis has also emphasized modernization as a strategic pillar, leading to a 16.8% increase in modernization orders. The company’s successful implementation of mod package offerings has been a driving force behind its modernization value. With a 15% increase in modernization backlog, Otis has positioned itself for strong growth prospects in the upcoming year.

Global Project Wins

Otis Elevator Company has secured numerous high-profile projects, predominantly in Asia, further consolidating its position as a trusted industry leader. The company’s ongoing dedication to innovation, timely delivery, and customer trust has been instrumental in winning these prestigious projects. Notable awards include extensive modernization projects, such as those at the Chongqing Metro in China, the 560 Mission Street in San Francisco, and the Burj Khalifa in Dubai.

Enhancing Iconic Structures

Otis’ commitment to excellence extends to its maintenance and modernization agreements for iconic structures. The company has been selected to undertake a multiyear modernization of the lifts at the Eiffel Tower, strengthening its long-standing relationship with this historic landmark. Additionally, Otis has been entrusted with the comprehensive modernization of all elevator units at 560 Mission Street in San Francisco, showcasing the company’s unwavering dedication to maintaining and improving renowned structures worldwide.

Financial Performance and Operational Efficiency

Otis Elevator Company has delivered a robust financial performance, with reported sales of $3.6 billion in the fourth quarter. The company has achieved organic sales growth for the 13th consecutive quarter, demonstrating its operational resilience. Notably, adjusted EPS grew by 16% in the quarter, reflecting the company’s strong financial position and efficient operations.

Segment Sales Performance

Otis’ segment sales performance has been impressive, with solid growth in service and maintenance, repair sales. The company has maintained a price cost-neutral position in the challenging pricing environment of China, underscoring its disciplined approach to pricing and material productivity. Service sales reached $8.4 billion, with exceptional organic growth and all lines of business exhibiting strong performance.

Operational Profit Performance

Otis has demonstrated resilient operational profit performance, achieving margin expansions across its new equipment and service segments. Despite challenges in China, the company achieved substantial new equipment profit growth in other regions, surpassing initial full-year guidance for operating profit growth.

With its unwavering commitment to excellence, strategic expansion, and robust operational efficiency, Otis Elevator Company continues to stand out as a global leader in the elevator and escalator industry.



Financial Outlook for 2024

Positive Financial Outlook for 2024

Stellar Performance in 2023

Despite a challenging macroeconomic landscape, the company outperformed expectations, achieving remarkable financial results in 2023. The service operating profit surged by $178 million at constant currency, propelled by robust volume, pricing, and productivity. Notably, service margins soared by 240 basis points, underscoring the company’s operational prowess.

Furthermore, adjusted EPS experienced solid growth, increasing by $0.37, with $0.29 attributed to exceptional operational performance. The successful execution of the Zardoya transaction, share repurchases of $800 million, and a 40 basis points improvement in the tax rate contributed an additional $0.12 to the EPS. This more than offset the $0.04 impact of foreign exchange headwinds.

The company closed 2023 with a notable adjusted free cash flow of $573 million, marking an increase of over 30% compared to the previous year. This upward trajectory was driven by higher net income and favorable working capital, bolstered by the growth in downpayments from increased new equipment orders.

These achievements were instrumental in surpassing the annual guidance, wherein the company generated approximately $1.5 billion of adjusted free cash flow, outperforming the initial projections. Despite the uncertain macro environment, the company’s exceptional operational performance led to a staggering 12% growth in adjusted EPS, while returning approximately $1.35 billion to the shareholders.

2024 Market Outlook

Looking ahead to 2024, the company projects a nuanced global market outlook. With the Americas and EMEA markets expected to witness a downturn, offset by growth in Asia, particularly in Asia-Pacific, the new equipment market is anticipated to observe a low to mid single-digit decline.

Despite these fluctuations, the long-term industry fundamentals remain robust, bolstered by the service-driven growth model. Forecasts indicate the global install base to grow at a similar rate to that of 2023, reaching approximately 22.5 million units. Notably, the company anticipates service to emerge as the primary growth driver, aligning with the industry’s trajectory.

Against this backdrop, Otis aims for net sales of $14.5 billion to $14.8 billion, projecting organic growth of 3% to 5%. Additionally, adjusted operating profit is expected to increase by $125 million to $175 million. The company sets its sights on adjusted EPS in the range of $3.80 to $3.90, reflecting a noteworthy 7% to 10% growth compared to the prior year. Furthermore, the company anticipates achieving an adjusted free cash flow of approximately $1.6 billion.

Detailed 2024 Segment Outlook

Delving into the segment outlook for the new equipment, the company foresees steady sales, underpinned by backlog coverage extending over a year and strategic initiatives. While the new equipment profit margin is expected to remain steady to up 10 basis points, the company remains focused on driving material and installation productivity, aiming to outperform previous targets.

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In the service sector, the company anticipates another robust year, projecting organic sales growth of 6% to 7%. The expansion will be driven by growth in maintenance, repair, and modernization, with a strategic focus on standardizing products and optimizing the supply chain.

Complementing its outlook, the company is executing Project UpLift initiatives, aiming to achieve $150 million in savings. Leveraging enterprise scale, optimizing indirect and supply chain spend, and process improvements are pivotal to achieving this target.

Continued Growth and Investment

In its commitment to a disciplined capital allocation strategy, the company sets its sights on repurchasing approximately $800 million in shares in 2024. Additionally, the company aims to enhance its dividend payout and pursue strategic M&A activities in the range of $50 million to $100 million.

With a considerable emphasis on operational excellence, portfolio expansion, and prudent investments, the company appears poised for a promising year ahead, underpinned by a resilient financial outlook and strategic initiatives to drive growth in a dynamic market landscape.





Understanding the Future with Insights from the Q1 Earnings Call

Decoding the 2024 Outlook from Q1 Earnings Call

Insights from the Financial Front

The Q1 Earnings Call for 2024 unleashed a trove of information, leading to a vigorous discussion among analysts eager to comprehend the intricate financial tapestry. The company’s prospects for the coming year loomed large, as executives unveiled a solid outlook backed by concrete figures and strategic maneuvers.

Peering Into the Geographical Landscape

Nigel Coe from Wolfe Research broke the ice by delving into the geographical nuances. The focus on China’s market weakness and deflationary economics brought clarity to a significant area of concern. Executives discussed the impact on new equipment pricing and, in the process, provided a comprehensive evaluation of the global economic terrain.

Analyzing Savings and Margins

Meanwhile, the query regarding uplift savings struck at the very heart of the company’s financial prowess. The subsequent discussion traced the asymmetric trajectory of savings, emphasizing both the organic growth and efficiency of operational procedures. The strategic allocation of these savings across services and new equipment indubitably spurred further deliberation among the analysts.

Contributions of the China Business

Of particular interest was the illumination shed on the company’s China business, spotlighting its impressive performance in the face of market challenges. The careful balance of order quality and volume, combined with an astute focus on service business growth, underpinned a meticulous strategy. The executives’ candid recount of the company’s China journey stirred a sense of intrigue and admiration among the audience.


The Resilient Backlog of Growth at the Heart of Otis’ Business

The Long-Term Play for Otis: A Praiseworthy Growth Story

Unwavering Confidence in the Backlog

Judy Marks, President and CEO, spoke about the strength of Otis’s backlog. This statement came in response to Julian Mitchell from Barclays, who inquired about the backlog trending as the company moves through the year. Marks enthusiastically shared that Americas and EMEA experienced an upsurge in new equipment orders in the fourth quarter, with Americas up by 6% and EMEA by 11%. The exception to this surge was seen in China, where the backlog decreased by mid single digits. However, Marks expressed confidence in the robust backlog, suggesting that it, combined with a 50 basis points new equipment share gain, will affirm sustainable growth.

Financial Projections for the Year

Anurag Maheshwari, Executive Vice President and CFO, provided further insight. Addressing Mitchell’s questions on the backlog progression in 2024 and the book-to-bill ratio, Maheshwari indicated that, based on market outlook and current performance, the company expects the backlog to either maintain a flattish trajectory or slightly rise by the end of the year. He underscored that the organization is well-prepared for the tough comps faced in the first quarter, expressing confidence in ending the year with a strong backlog.

Market Segmentation and Regional Analysis

Marks also delved into the specific market conditions in North America and EMEA. Notably, she stressed the impact of long-standing customer relationships on driving up the orders book. While addressing Mitchell’s query on the North American and European markets’ performance, she candidly acknowledged the overall weakness in the North American new equipment market, despite the company’s successful efforts to gain share and increase pricing. The market, which hit its lowest point since the Global Financial Crisis, poses a notable challenge. However, Marks’s optimism shone through as she emphasized that Otis’s investment in the low-rise market, particularly the introduction of the Gen3 Core product, has positioned the company well for success. Looking at Europe, Marks highlighted the strong performance in South Europe, led by Spain, and the relatively better performance of residential segments as compared to North America.

Strategic Planning in China

Judy Marks addressed concerns surrounding the competitive environment in China, asserting that despite the market’s weakness, Otis’s strategies have led to increased market share. Marks highlighted a persistent focus on managing volume and share against profitability while countering the impact of market deflation with better productivity. She emphasized extensive investments and innovation in products, including technological advancements and improvements in sales channels. Marks’s strategic approach in China has yielded a nearly 20% increase in bookings, contrasting with the multiyear market downturn. Her remarks reflected a resolute focus on sustainable growth and customer value, exemplifying a substantive leadership stance by Otis.

The overarching narrative that emerged from Otis’s leadership was one of fortified confidence amidst market turbulence, a reassuringly solid foundation for investors in an uncertain economic climate. Marks and Maheshwari conveyed an unshakable faith in the sustained growth and strategic positioning of the company, setting a compelling tone for Otis’s trajectory in the year ahead.






Otis Elevator Company Investor Call

Otis Elevator Company Sees Growth in Modernization Market

After a strong year in 2023 with a focus on strategic imperatives, Otis Elevator Company is gearing up for 2024, supported by the strength of its service-driven, customer-centric business model. During a recent investor call, Judy Marks, President and Chief Executive Officer, fielded questions regarding the company’s performance, particularly in the modernization market. The call emphasized the company’s aspirations and strategies in this frontier.

Driving the Growth: Modernization Backlog

Charsqrating on the backlog growth, Marks highlighted a 15% increase and attributed it to the refurbishment spurred by aging equipment. She emphasized the natural growth cycle driving the year-over-year additional modernization. Marks singled out the significant double-digit growth of China orders, despite its relatively younger install base, foreseeing continued growth in Americas and EMEA regions.

This upbeat tone from Marks was in sync with Anurag Maheshwari, Executive Vice President, and CFO, who concurred on the upward trajectory of mod margins. Echoing Marks, he sees the potential for modernization margins to surpass those of new equipment. Maheshwari outlined the efforts to standardize products and optimize the supply chain as the driving factors enabling this margin expansion. The speakers’ emphasis on the growth potential of modernization remained resolutely enthusiastic.

Focus on Margins and Strategic Imperative

As the call unfurled, stakeholders gained insights into Otis’ geographic variances in modernization margins. Marks mentioned a combination of aging and safety regulations and demand creation as pivotal drivers of market dynamics and elucidated the company’s strategic alignment with modernization as a fifth imperative.

Addressing the question of margins, both Marks and Maheshwari offered a glimpse into Otis’s strategic approach to industrializing modernization. Marks pointed out mod kits as an instrumental step in this direction, comparing the future of modernization to new equipment coming off a factory line.

Closing Remarks and Future Expectations

Marks concluded the call on a note of shared success, expressing the company’s excitement to unveil 2024 milestones at its upcoming investor day. The conference call’s positive undertone, laced with palpable anticipation, offered investors a glimpse into the management’s bullish outlook.

Analysts’ Perspective and Conclusion

The wide-ranging discussion, although adorned with industry jargon and financial metrics, showcased the executives’ eagerness and confidence in Otis’s trajectory. The call left stakeholders with a strong sense of Otis’s meticulous planning and deliberate steps to capitalize on the burgeoning modernization market. As the company prepares for its investor day, the sentiments expressed in the call suggest a palpable air of optimism within the company’s leadership.