Otis Accelerated Sales Growth as Margins Tightened
The company lowered the midpoint of its 2026 adjusted-free-cash-flow outlook by $125 million.
Otis Worldwide (OTIS), the elevator and escalator maker, accelerated organic sales growth to 6% in the second quarter from 1% in each of the previous two quarters.
The stronger top-line pace came with mounting pressure on profitability. Adjusted operating profit declined after gains in the second half of 2024, while adjusted operating margin contracted more sharply than in the first quarter.
Net sales rose 7% from a year earlier to $3.859 billion, up from $3.566 billion in the first quarter. Adjusted earnings increased sequentially to $1.01 a share but fell 4% from a year earlier, extending the first quarter’s 3% decline. GAAP earnings rose 13% to $1.12 a share, primarily because prior-year UpLift transformation costs, separation adjustments and other nonrecurring items did not recur.
Service drove the sales acceleration, rising 11% to $2.580 billion as organic growth strengthened to 9% from 5% in the first quarter. Organic maintenance-and-repair sales increased 6%, while organic modernization sales climbed 24%.
New Equipment remained a drag despite sequential improvement. Sales were flat and organic sales declined 1%, as roughly 10% growth in the Americas was offset by a high-teens drop in China and a mid-single-digit decline in EMEA. New Equipment operating profit fell $28 million to $40 million, and its margin narrowed 220 basis points to 3.1% on lower volume and unfavorable pricing and mix.
Service operating profit rose $21 million to $599 million, but its margin contracted 170 basis points to 23.2% as labor and strategic-investment costs, productivity and material-cost headwinds, and unfavorable mix outweighed volume and pricing benefits. Companywide adjusted operating margin fell to 15.2% from 15.4% in the first quarter, with the year-over-year contraction widening to 180 basis points.
Otis cut its adjusted-free-cash-flow forecast to $1.50 billion to $1.55 billion from $1.6 billion to $1.7 billion. Its revised adjusted-EPS outlook calls for $4.01 to $4.05 a share, roughly a 1% decline to flat performance against 2024, replacing an initial forecast for mid- to high-single-digit growth.
The order picture tempered the stronger Service quarter. Modernization orders grew 9% at constant currency, slowing from 11% in the first quarter, while New Equipment orders fell 5% as declines of more than 20% in Asia Pacific and the high teens in China outweighed growth in the Americas and EMEA.