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Otis (OTIS) Q3 Earnings Beat, Increases Y/Y on Strong Margins
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Otis Worldwide Corporation (OTIS - Free Report) reported mixed results in third-quarter 2022. Its earnings surpassed the Zacks Consensus Estimate and rose on a year-over-year basis. However, sales declined from the year-ago quarter’s figure and lagged the consensus mark.
President & CEO of Otis, Judy Marks, stated, "We continue to demonstrate that our long-term strategy, agility and focus on execution can yield results in a period of macro headwinds. The combination of strong New Equipment backlog growth and our increasing service portfolio, up 3.8%, positions us well for the remainder of 2022 and provides a solid foundation for strong performance in 2023 and beyond."
Earnings & Revenue Discussion
The company reported quarterly earnings of 80 cents per share, surpassing the consensus estimate of 78 cents by 2.6% and increasing 5.3% from the year-ago quarter’s figure of 76 cents. The upside was mainly driven by operational improvement, a lower share count and the Zardoya transaction, partially offset by an eight cents headwind from foreign exchange translation.
Otis Worldwide Corporation Price, Consensus and EPS Surprise
Net sales of $3.3 billion missed the consensus mark of $3.44 million by 2.9% and declined 7.6% on a year-over-year basis. Adjusted net sales fell 6.4% year over year to $3.33 billion. Organically, net sales rose 0.8% year over year for the quarter. Currency headwinds impacted sales by 7.2%.
Adjusted operating margin expanded 60 basis points (bps) to 16.3% from the year-ago period’s levels, with positive segment mix and margin expansion in Service.
Segment Details
New Equipment’s net sales of $1.45 billion fell 13.9% and adjusted net sales of $1.43 billion dropped 11.8% from the prior-year period’s levels. The downside was caused by a 5.4% decline in organic sales and a 5.8% reduction in foreign exchange. Organic sales were up in the low teens in the Asia Pacific and mid-single-digit in the EMEA, which was more than offset by a decline in the Americas and China.
New Equipment orders were down 0.8% at constant currency. Excluding China, the metric was up 7.4% at constant currency with low single-digit growth in the Americas and low teen growth in EMEA and Asia Pacific. The new equipment backlog remained at par and the adjusted backlog rose 12% at constant currency from the prior year, with growth in all regions.
Adjusted operating margin contracted 60 bps year over year to 7.2% due to commodity headwinds and lower volume.
Service’s net sales fell 2.2% to $1.9 billion and adjusted revenues dipped 2% year over year. A 6.2% rise in organic sales was offset by an 8.5% headwind from foreign exchange. Organic maintenance and repair sales grew 5.4%, and organic modernization sales rose 10.3% from the prior-year quarter. Adjusted operating margin registered an improvement of 50 bps year over year to 23.9%, driven by higher volume, favorable pricing and productivity, partially offset by labor inflation.
Financial Position
Otis had cash and cash equivalents of $1.03 billion as of Jun 30, 2022. This compares unfavorably with 2021-end numbers of $1.57 billion. Long-term debt was $6.46 billion as of Sep 30, 2022, up from $7.25 billion in the 2021-end.
Net cash flows provided by operating activities were $239 million for the third quarter, down from $355 million a year ago. Free cash flow totaled $215 million for the quarter, down from $324 million a year ago.
2022 Guidance Revised
For 2022, the company expects adjusted net sales to be within $13.4-$13.5 billion, lower than the $13.6-$13.8 billion projected earlier. The new projection indicates a 4-4.5% year-over-year decline. Organic sales growth is now projected to be 2-2.5% (down nearly 2.5% for New Equipment but up 6-6.5% for Service). Earlier, it projected organic sales growth of 2.5-3.5%. Adjusted operating profit is now projected to be approximately $2.1 billion ($2.1-$2.2 billion anticipated earlier), down $35-$55 million in actual currency but up $120-$140 million at constant currency.
Adjusted earnings per share are anticipated to be $3.11-$3.15, suggesting 5-7% year-over-year growth. This is down from the prior projection of $3.17-$3.21 per share. The adjusted effective tax rate is likely to be 26.5-26.7%. Free cash flow is expected to be $1.5-$1.6 billion. Share repurchases are expected at $850 million.
PulteGroup Inc. (PHM - Free Report) reported unimpressive results in third-quarter 2022. Quarterly earnings and revenues missed their respective Zacks Consensus Estimate thanks to prevailing industry headwinds.
Nonetheless, the metrics increased on a year-over-year basis.
RPM International Inc. (RPM - Free Report) reported impressive results in first-quarter fiscal 2023 (ended Aug 31, 2022), with earnings and sales surpassing their respective Zacks Consensus Estimate and increasing on a year-over-year basis.
The upside was driven by the continued implementation of MAP operational improvement initiatives, double-digit sales growth across the segments. Strong pricing offset supply chain woes, cost inflation, macroeconomic challenges and foreign exchange headwinds.
Watsco, Inc. (WSO - Free Report) reported third-quarter 2022 results, wherein the company’s earnings missed the Zacks Consensus Estimate, but sales beat the same.
Nonetheless, WSO achieved higher sales and profitability, reflecting normalized residential HVAC equipment volumes, effective price realization, a continued shift toward higher-efficiency HVAC equipment and expansion in sales of other higher-margin HVAC products.
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Otis (OTIS) Q3 Earnings Beat, Increases Y/Y on Strong Margins
Otis Worldwide Corporation (OTIS - Free Report) reported mixed results in third-quarter 2022. Its earnings surpassed the Zacks Consensus Estimate and rose on a year-over-year basis. However, sales declined from the year-ago quarter’s figure and lagged the consensus mark.
President & CEO of Otis, Judy Marks, stated, "We continue to demonstrate that our long-term strategy, agility and focus on execution can yield results in a period of macro headwinds. The combination of strong New Equipment backlog growth and our increasing service portfolio, up 3.8%, positions us well for the remainder of 2022 and provides a solid foundation for strong performance in 2023 and beyond."
Earnings & Revenue Discussion
The company reported quarterly earnings of 80 cents per share, surpassing the consensus estimate of 78 cents by 2.6% and increasing 5.3% from the year-ago quarter’s figure of 76 cents. The upside was mainly driven by operational improvement, a lower share count and the Zardoya transaction, partially offset by an eight cents headwind from foreign exchange translation.
Otis Worldwide Corporation Price, Consensus and EPS Surprise
Otis Worldwide Corporation price-consensus-eps-surprise-chart | Otis Worldwide Corporation Quote
Net sales of $3.3 billion missed the consensus mark of $3.44 million by 2.9% and declined 7.6% on a year-over-year basis. Adjusted net sales fell 6.4% year over year to $3.33 billion. Organically, net sales rose 0.8% year over year for the quarter. Currency headwinds impacted sales by 7.2%.
Adjusted operating margin expanded 60 basis points (bps) to 16.3% from the year-ago period’s levels, with positive segment mix and margin expansion in Service.
Segment Details
New Equipment’s net sales of $1.45 billion fell 13.9% and adjusted net sales of $1.43 billion dropped 11.8% from the prior-year period’s levels. The downside was caused by a 5.4% decline in organic sales and a 5.8% reduction in foreign exchange. Organic sales were up in the low teens in the Asia Pacific and mid-single-digit in the EMEA, which was more than offset by a decline in the Americas and China.
New Equipment orders were down 0.8% at constant currency. Excluding China, the metric was up 7.4% at constant currency with low single-digit growth in the Americas and low teen growth in EMEA and Asia Pacific. The new equipment backlog remained at par and the adjusted backlog rose 12% at constant currency from the prior year, with growth in all regions.
Adjusted operating margin contracted 60 bps year over year to 7.2% due to commodity headwinds and lower volume.
Service’s net sales fell 2.2% to $1.9 billion and adjusted revenues dipped 2% year over year. A 6.2% rise in organic sales was offset by an 8.5% headwind from foreign exchange. Organic maintenance and repair sales grew 5.4%, and organic modernization sales rose 10.3% from the prior-year quarter. Adjusted operating margin registered an improvement of 50 bps year over year to 23.9%, driven by higher volume, favorable pricing and productivity, partially offset by labor inflation.
Financial Position
Otis had cash and cash equivalents of $1.03 billion as of Jun 30, 2022. This compares unfavorably with 2021-end numbers of $1.57 billion. Long-term debt was $6.46 billion as of Sep 30, 2022, up from $7.25 billion in the 2021-end.
Net cash flows provided by operating activities were $239 million for the third quarter, down from $355 million a year ago. Free cash flow totaled $215 million for the quarter, down from $324 million a year ago.
2022 Guidance Revised
For 2022, the company expects adjusted net sales to be within $13.4-$13.5 billion, lower than the $13.6-$13.8 billion projected earlier. The new projection indicates a 4-4.5% year-over-year decline. Organic sales growth is now projected to be 2-2.5% (down nearly 2.5% for New Equipment but up 6-6.5% for Service). Earlier, it projected organic sales growth of 2.5-3.5%. Adjusted operating profit is now projected to be approximately $2.1 billion ($2.1-$2.2 billion anticipated earlier), down $35-$55 million in actual currency but up $120-$140 million at constant currency.
Adjusted earnings per share are anticipated to be $3.11-$3.15, suggesting 5-7% year-over-year growth. This is down from the prior projection of $3.17-$3.21 per share. The adjusted effective tax rate is likely to be 26.5-26.7%. Free cash flow is expected to be $1.5-$1.6 billion. Share repurchases are expected at $850 million.
Zacks Rank & Some Recent Construction Releases
Otis currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
PulteGroup Inc. (PHM - Free Report) reported unimpressive results in third-quarter 2022. Quarterly earnings and revenues missed their respective Zacks Consensus Estimate thanks to prevailing industry headwinds.
Nonetheless, the metrics increased on a year-over-year basis.
RPM International Inc. (RPM - Free Report) reported impressive results in first-quarter fiscal 2023 (ended Aug 31, 2022), with earnings and sales surpassing their respective Zacks Consensus Estimate and increasing on a year-over-year basis.
The upside was driven by the continued implementation of MAP operational improvement initiatives, double-digit sales growth across the segments. Strong pricing offset supply chain woes, cost inflation, macroeconomic challenges and foreign exchange headwinds.
Watsco, Inc. (WSO - Free Report) reported third-quarter 2022 results, wherein the company’s earnings missed the Zacks Consensus Estimate, but sales beat the same.
Nonetheless, WSO achieved higher sales and profitability, reflecting normalized residential HVAC equipment volumes, effective price realization, a continued shift toward higher-efficiency HVAC equipment and expansion in sales of other higher-margin HVAC products.