Otis Earnings: Orders and Service Revenue Hold Up Well

Wide-moat Otis’ OTIS sales were up 3.6% at constant exchange rates in the first quarter of 2023 thanks to strong performance in service and modernization revenue, which were up 7.0% and 3.3%, respectively. We have seen the same narrative across our elevator coverage this quarter—while new orders and installations have been weak due to macroeconomic uncertainty and increases in interest rates that have put many new real estate developments on hold, service and modernization revenue is performing well. However, Otis has performed better than its peers on the new equipment front with orders up 7.4% at constant exchange rates, due to double-digit growth in both Americas and Asia-Pacific (excluding China). Management maintained its 2023 sales and operating profit guidance, only making slight changes to the earnings per share forecast. We are maintaining our $73 fair value estimate, with shares remaining in overvalued territory.

Adjusted operating margin came in at 15.5%, a 50-basis-point year-on-year decline. Adjusted operating profit from the service division increased by 4.3% year on year due to higher volumes, favorable pricing, and productivity measures. However, this was more than offset by negative changes in the regional and product mix and currency headwinds. The Otis board of directors declared a quarterly dividend of $0.34 per share, which represents a 17.2% increase from last year.