A month has gone by since the last earnings report for Otis Worldwide (OTIS Quick QuoteOTIS - Free Report) . Shares have added about 11.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Otis Worldwide due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Otis Q3 Earnings Beat, Increases Y/Y on Strong Margins

Otis Worldwide Corporation 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.

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.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

The consensus estimate has shifted -9.43% due to these changes.

VGM Scores

At this time, Otis Worldwide has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Otis Worldwide has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.