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Otis Worldwide (OTIS) Q2 Earnings & Net Sales Beat, View Up

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Otis Worldwide Corporation (OTIS - Free Report) reported solid second-quarter 2021 results, with earnings and revenues not only topping the Zacks Consensus Estimate but also improving on a year-over-year basis. Solid organic sales in both New Equipment and Service segments, higher operating margins along with a lower effective tax rate benefited the company.

President and CEO of Otis, Judy Marks, said, "Otis had an excellent first half with positive momentum continuing in the second quarter as we executed our long-term strategy and delivered for ourcustomers amid strengthening demand and recovery in our end markets.” He also added, “"This strong performance andprogress on our strategic priorities gives us the confidence to improve our 2021 outlook across all key metrics and raise our share repurchase target to$750 million for the year, demonstrating our ongoing commitment to deliver value for our shareholders."

Earnings & Revenue Discussion

The company reported quarterly earnings of 79 cents per share, which surpassed the consensus estimate of 71 cents by 11.3%. Also, the metric grew 41.1% from the year-ago figure of 56 cents per share.

Net sales of $3,701 million topped the consensus mark of $3,456 million by 7.1% and improved 22.2% on year-over-year basis backed by solid segmental results. Organically, net sales grew 15.4% for the quarter.

Adjusted operating margin expanded 40 basis points (bps) to 15.5%, with margin expansion in both New Equipment and Service.

Otis Worldwide Corporation Price, Consensus and EPS Surprise

Otis Worldwide Corporation Price, Consensus and EPS Surprise

Otis Worldwide Corporation price-consensus-eps-surprise-chart | Otis Worldwide Corporation Quote

Segment Details

New Equipment’s revenues of $1,727 million increased 33.5% from the prior-year period backed by 25.4% organic growth. Organic sales were up in mid-30s in Americas and EMEA, and grew in mid-teens in Asia. China organic sales were up in double digits. New Equipment orders were up 23.9% at constant currency.

Operating margin registered an improvement of 200 bps year over year to 9% backed by higher volume.

New equipment backlog increased 10% and 5% at constant currency from the prior year.

Service revenues improved 13.8% year over year to $1,974 million backed by a 7.8% rise in organic sales. Organic maintenance and repair sales grew 7.5% and organic modernization sales rose 9.3% from the prior-year quarter. Adjusted operating margin registered an improvement of 10 bps year over year to 22.5%.

Financial Position

Otis had cash and cash equivalents of $1,923 million as of Jun 30, 2021. This compares favorably with 2020-end numbers of $1,782 million. Long-term debt was $5,457 million as of Jun 30, 2021, up from $5,262 million at 2020-end.

Net cash flows provided by operating activities were $533 million for the second quarter, down from $664 million a year ago. Free cash flow totaled $493 million, down from $628 million a year ago.

2021 Guidance Raised

For 2021, the company now expects net sales between $14.1 and $14.2 billion, indicating an increase of 10.5-11% year over year. It earlier expected sales between $13.6 and $13.9 billion for the year. Organic sales growth is now likely to be 7.5-8% (12-13% for New Equipment and 4-4.5% for Service) versus 4-6% expected earlier. Adjusted operating profit is projected within $170-$190 million at constant currency versus $120-$160 million of earlier prediction.

Adjusted earnings are now anticipated within $2.89-$2.93, up from the earlier view of $2.78-$2.84. The latest earnings expectation indicates 15-16% year-over-year growth. Adjusted effective tax rate is likely to be 29% versus 29.5% expected earlier. Free cash flow now is expected between $1.45 and 1.5 billion versus $1.35-$1.45 billion projected earlier.

Zacks Rank

Otis — which shares space with Quanex Building Products Corporation (NX - Free Report) , Armstrong World Industries, Inc. (AWI - Free Report) and Installed Building Products, Inc. (IBP - Free Report) in the Zacks Building Products - Miscellaneous industry — currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.