Why did Otis's total net sales decline in the second quarter of 2024?

Net sales fell 3.2% to $3.6 billion, driven by New Equipment, where net sales decreased 11.4%, including a 9.4% decline in organic sales. Service net sales growth of 3.0% partially offset that decline. The filing attributes the New Equipment decline to a double-digit decline in China and low single digit declines in EMEA, partly offset by growth in Asia Pacific and the Americas.

How did Otis's profitability change in the quarter?

GAAP operating profit was $570 million, down $10 million, while adjusted operating profit rose $23 million to $613 million. GAAP operating profit margin expanded 20 basis points to 15.8%, and adjusted operating profit margin expanded 110 basis points to 17.0%, driven by favorable segment performance and mix.

What changed in Otis's cash flow and balance sheet?

Cash flow from operations was $308 million, down from $446 million a year earlier, with the company citing changes in working capital. Adjusted free cash flow was $353 million. Short-term borrowings and the current portion of long-term debt rose to $1.66 billion at June 30, 2024, from $32 million at December 31, 2023, and cash and cash equivalents declined to $942 million.

What is the revised full-year 2024 outlook?

Otis expects net sales of $14.3 billion to $14.5 billion, organic sales growth of 1% to 3% (with organic New Equipment sales down mid-single digits and organic Service sales up 6% to 7%), adjusted operating profit of $2.40 billion to $2.45 billion, adjusted EPS of $3.85 to $3.90, and adjusted free cash flow of approximately $1.5 billion to $1.6 billion.

OTIS 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed July 24, 2024. Cited figures are marked; the original filing is the authoritative source.

Otis Worldwide Corporation (NYSE: OTIS) furnished an 8-K on July 24, 2024 attaching its press release reporting second quarter 2024 results.

Net sales were $3.6 billion^a, down 3.2% year over year (down 1.1% at constant currency), with organic sales down 1.2%. The decline was driven by New Equipment, where net sales fell 11.4% and organic sales fell 9.4%. Service net sales rose 3.0% to $2.2 billion, with organic sales up 5.1%, and Service segment operating profit increased $39 million to $538 million, with segment margin expanding 110 basis points to 24.7%.

GAAP EPS rose 13.3% to $1.02^b and adjusted EPS rose 15.2% to $1.06, supported by margin expansion and an improved effective tax rate. Cash flow from operations was $308 million for the quarter, down from $446 million a year earlier, and adjusted free cash flow was $353 million. The company repurchased $300 million of common stock in the quarter and $600 million in the first half.

Net interest expense and the balance sheet show short-term borrowings and current portion of long-term debt rising to $1.66 billion^c at June 30, 2024 from $32 million at December 31, 2023, while cash and cash equivalents fell to $942 million from $1.27 billion. Management raised its adjusted EPS outlook to $3.85 to $3.90 (up 9% to 10%) and now expects net sales of $14.3 billion to $14.5 billion, organic sales growth of 1% to 3%, and adjusted free cash flow of approximately $1.5 billion to $1.6 billion. The company also highlighted its UpLift program, which it expects to reach a run-rate savings of $175 million by mid-2025.

02—Key points

Key Highlights

Second quarter net sales of $3.6 billion decreased 3.2% year over year, driven by a 11.4% decline in New Equipment net sales.
Service net sales increased 3.0% to $2.18 billion, with organic sales up 5.1% and Service segment operating profit margin up 110 basis points to 24.7%.
GAAP EPS rose 13.3% to $1.02 and adjusted EPS rose 15.2% to $1.06 in the quarter.
New Equipment orders were down 11% at constant currency, and New Equipment backlog decreased 4% at actual currency.
Modernization backlog increased 15% at actual currency and 17% at constant currency; mod orders increased 14%.
Full-year 2024 adjusted EPS outlook raised to $3.85 to $3.90, with adjusted free cash flow expected at approximately $1.5 billion to $1.6 billion.
Share repurchases totaled $300 million in the quarter and $600 million in the first half of 2024.

03—Questions

Frequently Asked Questions

Why did Otis's total net sales decline in the second quarter of 2024?
Net sales fell 3.2% to $3.6 billion, driven by New Equipment, where net sales decreased 11.4%, including a 9.4% decline in organic sales. Service net sales growth of 3.0% partially offset that decline. The filing attributes the New Equipment decline to a double-digit decline in China and low single digit declines in EMEA, partly offset by growth in Asia Pacific and the Americas.
How did Otis's profitability change in the quarter?
GAAP operating profit was $570 million, down $10 million, while adjusted operating profit rose $23 million to $613 million. GAAP operating profit margin expanded 20 basis points to 15.8%, and adjusted operating profit margin expanded 110 basis points to 17.0%, driven by favorable segment performance and mix.
What changed in Otis's cash flow and balance sheet?
Cash flow from operations was $308 million, down from $446 million a year earlier, with the company citing changes in working capital. Adjusted free cash flow was $353 million. Short-term borrowings and the current portion of long-term debt rose to $1.66 billion at June 30, 2024, from $32 million at December 31, 2023, and cash and cash equivalents declined to $942 million.
What is the revised full-year 2024 outlook?
Otis expects net sales of $14.3 billion to $14.5 billion, organic sales growth of 1% to 3% (with organic New Equipment sales down mid-single digits and organic Service sales up 6% to 7%), adjusted operating profit of $2.40 billion to $2.45 billion, adjusted EPS of $3.85 to $3.90, and adjusted free cash flow of approximately $1.5 billion to $1.6 billion.

04—Continue

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