Otis WorldwideOTIS

The company earned $1.01 per share last quarter, matching what analysts expected, on revenue of $3.86 billion. The real story is the shift in where that money comes from. While sales of new elevators fell about 1 percent, the service business grew 9 percent. This is the fastest growth for that segment since the company became independent, and it matters because servicing existing elevators earns much higher profit than selling new ones.

Modernization orders, where the company upgrades older elevators with new technology, rose 9 percent. This helped push the total backlog of work up 24 percent. By focusing on its existing base of millions of elevators, the company is successfully making up for a weak construction market in China. It also returned $400 million to shareholders through stock buybacks during the quarter.

See the full quarter, and how our tracked metrics did

Source: 8-K filing

Key highlights

• Service segment strength: The service business, which includes maintaining and fixing existing elevators, saw organic sales grow 9% to $2.6 billion, matching the company's highest growth rate since becoming an independent firm. This part of the business now accounts for two thirds of total company revenue and provides a steady stream of income compared to one-time sales.
• Modernization backlog surge: The backlog for modernization, which is the value of future work to upgrade older elevators with new technology, grew 26% when ignoring currency swings. This robust demand helped offset a high teens decline in sales from China, where the market for installing new equipment in buildings remains difficult.
• New equipment margins pressured: Profit margins for the new equipment division fell to 3.1% from 5.3% a year ago. The company attributed the drop to lower sales volumes, unfavorable pricing, and a shift in the mix of products sold during the quarter.
• Aggressive share repurchases: The company spent $400 million to buy back its own stock during the quarter, bringing the total for the first half of the year to $800 million. These buybacks reduce the total number of shares available, which can help increase the value of each remaining share for long-term owners.
• Revised full year outlook: Management now expects full year sales to be between $15.1 billion and $15.3 billion, and adjusted profit per share is projected to be between $4.01 and $4.05. This updated range reflects a measured approach to the second half of the year while the company continues to invest in its service quality and digital technology.

Our take: A solid quarter that shows the strength of the service model. While the construction market in China continues to weigh on new equipment sales, the 26% growth in modernization backlog shows that owners are choosing to upgrade what they already have. This shift toward recurring service work strengthens the long-term case for the business.