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Otis was awarded the world record for the tallest elevator in a building for its installation at the Tianjin 117 tower in China. The company is supplying all 266 elevators and escalators for the project, including two high-speed units that travel 597 meters. While this is a notable engineering win, it does not change the core outlook for the business. Otis makes most of its profit from the steady fees it earns maintaining existing elevators rather than building record-breaking new ones, especially as the broader construction market in China remains in a deep slump.
Source: PRNewsWire
Otis will pay a dividend of $0.44 per share for the quarter. This is a routine move for the company, which uses the steady cash it earns from elevator maintenance contracts to pay shareholders regularly. While not a change in strategy, it confirms the company's ability to keep returning cash even as it manages a slow construction market in China.
Source: PRNewsWire
After Otis Worldwide reported its October results, we updated our fair value and cut our quality score to 3.4. We lowered our ratings for the management team, how well the business is protected from competitors, and its ability to withstand industry changes from AI. We added a new risk to what we track regarding the chief executive retiring in 2027 and how that may affect the company's digital transformation. Our update also includes new projections for lower sales of equipment in China and the effects of a lower cash flow target.
Otis earned $1.05 per share this quarter, slightly ahead of the $1.01 analysts expected. Total sales reached $3.91 billion, led by a strong performance in the service division. This part of the business, which handles maintenance and repairs, is more profitable than selling new elevators and grew its sales by 8 percent compared to last year.
The company is successfully shifting its focus away from a cooling market for new buildings. Orders for modernization, upgrading older elevators with newer tech, grew 10 percent, and the total backlog for these projects is now 20 percent larger than it was a year ago. This provides a steady stream of future work that is less dependent on the pace of new construction. While profits from new equipment sales were a bit softer, the service profit margin improved to 24.2 percent. This is a key number for Otis because it shows that digital tools for technicians are making the maintenance business more efficient. Management kept its outlook for the full year mostly unchanged and has bought back about $800 million of its own shares so far this year.
See the full quarter, and how our tracked metrics did
Source: 8-K filing
Otis is scheduled to report its quarterly performance on October 28. Analysts are looking for profit of about $1.01 per share on revenue of roughly $3.85 billion. The most important thing to watch is the service business, which provides steady maintenance income. We will be looking to see if this recurring revenue is growing fast enough to offset the slowdown in new elevator sales in China, which has been a drag on the business lately.
Otis consistently delivers tiny profit beats, which suggests management sets a very conservative bar that they can reliably clear even when the global construction market is choppy.
| Expectation | |
|---|---|
| EPS | $1.10 |
| Revenue | $3.98B |
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