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Why Is Otis Worldwide (OTIS) Up 2.2% Since Last Earnings Report?
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It has been about a month since the last earnings report for Otis Worldwide (OTIS - Free Report) . Shares have added about 2.2% 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 the most recent earnings report in order to get a better handle on the important catalysts.
Otis Worldwide Corporation reported solid results fourth-quarter 2022. Its earnings and sales surpassed the Zacks Consensus Estimate. Its quarterly results reflected strong performance, including mid-single-digit organic sales growth in New Equipment and Service and continued operating profit margin expansion in the Service business.
The company remains focused on strong portfolio growth and generating a solid New Equipment backlog. It also intends to expand operating margins, return cash to shareholders through a capital-allocation strategy and pursue additional progress toward ESG goals.
Chair, president & CEO of Otis, Judy Marks, stated, “For the third year in a row, we delivered strong annual results. We are successfully navigating through macro challenges that have pressured our business. In 2022 we delivered 7.1% growth in New Equipment Orders, accelerated growth in our industry-leading Service portfolio to 4.1%, and grew adjusted EPS high single digits — while distributing over $1.3B to shareholders, including $850M through share repurchases.”
Earnings & Revenue Discussion
The company reported quarterly earnings of 75 cents per share, surpassing the consensus estimate of 73 cents by 2.7% and increasing 4.2% from the year-ago quarter’s figure of 72 cents. The upside was mainly driven by operating profit growth at constant currency and a lower effective tax rate, partially offset by headwinds from foreign exchange translation.
Net sales of $3.4 billion topped the consensus mark of $3.3 million by 3.8% but declined 3.6% on a year-over-year basis. Adjusted net sales fell 1.9% year over year to $3.4 billion. Organically, net sales rose 6.1% year over year for the quarter. Currency headwinds impacted sales by 8.2%.
Adjusted operating margin remained flat year over year at 14.7%, as gains from segment performance and the mix were offset by corporate cost headwinds.
Segment Details
New Equipment’s net sales of $1.5 billion fell 6.5% and adjusted net sales of $1.5 billion dropped 3.1% from the prior-year period’s levels. An 8.1% reduction in foreign exchange was partly offset by a 5.1% increase in organic sales.
Organic sales were up 12% and 10.7% in the EMEA and the Americas, respectively. Asia’s organic sales were down slightly and Asia Pacific registered low teens growth in organic sales. However, China witnessed a 4.3% decline in organic sales.
New Equipment orders were up 4% at constant currency in the quarter. The metric was up by the high-single digit in Asia Pacific and EMEA and by a mid-single digit in China. However, the Americas witnessed a mid-single-digit decline in New Equipment orders.
The New Equipment backlog was up 3% in 2022 and the adjusted backlog at constant currency increased 11% from 2021.
Adjusted operating margin contracted 10 basis points (bps) year over year to 4.9% due to commodity headwinds and unfavorable mix.
Service’s net sales fell 1.4% to $1.98 billion and adjusted revenues dipped 1% year over year. A 6.9% rise in organic sales was offset by an 8.3% headwind from foreign exchange. Organic maintenance and repair sales grew 6.5%, and organic modernization sales rose 8.8% from the prior-year quarter.
Adjusted operating margin registered an improvement of 70 bps year over year to 23.9%, driven by higher volume, favorable pricing and productivity, partially offset by wage inflation.
2022 Highlights
Earnings were $3.17 per share in the year, reflecting an increase of 7.5% from 2021. Net sales of $13.69 billion declined 4.3% and decreased 3.3% on an adjusted basis. Organic sales witnessed 2.5% growth.
New Equipment sales were down 8.8% and down 6.9% on an adjusted basis. Service sales were down 0.6% and down 0.5% on an adjusted basis.
Financial Position
Otis had cash and cash equivalents of $1.19 billion as of Dec 31, 2022. This compares unfavorably with 2021-end numbers of $1.57 billion. Long-term debt was $6.098 billion as of Dec 31, 2022, down from $7.25 billion in the 2021-end.
Net cash flows provided by operating activities were $464 million for the fourth quarter, up from $277 million a year ago. In 2022, the metric was $1,560 million, down from $1,750 million in 2021.
Free cash flow (FCF) totaled $430 million for the quarter, up from $236 million a year ago. In 2022, FCF was $1.44 billion, down from $1.59 billion in 2021.
2023 Guidance
For 2023, the company expects net sales to be within $13.8-$14.1 billion. The new projection indicates 1.5-4% year-over-year growth. Organic sales growth is projected to be 4-6% (up 3-5% for New Equipment and up 5-7% for Service). Adjusted operating profit is projected to be $2.2-$2.25 billion, up $130 to $175 million at constant currency and up $70 to $130 million at actual currency.
Adjusted earnings per share are anticipated to be $3.35-$3.50, suggesting 6-10% year-over-year growth. The adjusted effective tax rate is likely to be 26-26.5%. Free cash flow is expected to be $1.5-$1.55 billion.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -8.89% due to these changes.
VGM Scores
Currently, Otis Worldwide has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, 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 D. 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.
Performance of an Industry Player
Otis Worldwide is part of the Zacks Building Products - Miscellaneous industry. Over the past month, United Rentals (URI - Free Report) , a stock from the same industry, has gained 3.2%. The company reported its results for the quarter ended December 2022 more than a month ago.
United Rentals reported revenues of $3.3 billion in the last reported quarter, representing a year-over-year change of +18.7%. EPS of $9.74 for the same period compares with $7.39 a year ago.
For the current quarter, United Rentals is expected to post earnings of $7.93 per share, indicating a change of +38.4% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.7% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for United Rentals. Also, the stock has a VGM Score of A.
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Why Is Otis Worldwide (OTIS) Up 2.2% Since Last Earnings Report?
It has been about a month since the last earnings report for Otis Worldwide (OTIS - Free Report) . Shares have added about 2.2% 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 the most recent earnings report in order to get a better handle on the important catalysts.
Otis Q4 Earnings & Sales Beat Estimates, Backlog Solid
Otis Worldwide Corporation reported solid results fourth-quarter 2022. Its earnings and sales surpassed the Zacks Consensus Estimate. Its quarterly results reflected strong performance, including mid-single-digit organic sales growth in New Equipment and Service and continued operating profit margin expansion in the Service business.
The company remains focused on strong portfolio growth and generating a solid New Equipment backlog. It also intends to expand operating margins, return cash to shareholders through a capital-allocation strategy and pursue additional progress toward ESG goals.
Chair, president & CEO of Otis, Judy Marks, stated, “For the third year in a row, we delivered strong annual results. We are successfully navigating through macro challenges that have pressured our business. In 2022 we delivered 7.1% growth in New Equipment Orders, accelerated growth in our industry-leading Service portfolio to 4.1%, and grew adjusted EPS high single digits — while distributing over $1.3B to shareholders, including $850M through share repurchases.”
Earnings & Revenue Discussion
The company reported quarterly earnings of 75 cents per share, surpassing the consensus estimate of 73 cents by 2.7% and increasing 4.2% from the year-ago quarter’s figure of 72 cents. The upside was mainly driven by operating profit growth at constant currency and a lower effective tax rate, partially offset by headwinds from foreign exchange translation.
Net sales of $3.4 billion topped the consensus mark of $3.3 million by 3.8% but declined 3.6% on a year-over-year basis. Adjusted net sales fell 1.9% year over year to $3.4 billion. Organically, net sales rose 6.1% year over year for the quarter. Currency headwinds impacted sales by 8.2%.
Adjusted operating margin remained flat year over year at 14.7%, as gains from segment performance and the mix were offset by corporate cost headwinds.
Segment Details
New Equipment’s net sales of $1.5 billion fell 6.5% and adjusted net sales of $1.5 billion dropped 3.1% from the prior-year period’s levels. An 8.1% reduction in foreign exchange was partly offset by a 5.1% increase in organic sales.
Organic sales were up 12% and 10.7% in the EMEA and the Americas, respectively. Asia’s organic sales were down slightly and Asia Pacific registered low teens growth in organic sales. However, China witnessed a 4.3% decline in organic sales.
New Equipment orders were up 4% at constant currency in the quarter. The metric was up by the high-single digit in Asia Pacific and EMEA and by a mid-single digit in China. However, the Americas witnessed a mid-single-digit decline in New Equipment orders.
The New Equipment backlog was up 3% in 2022 and the adjusted backlog at constant currency increased 11% from 2021.
Adjusted operating margin contracted 10 basis points (bps) year over year to 4.9% due to commodity headwinds and unfavorable mix.
Service’s net sales fell 1.4% to $1.98 billion and adjusted revenues dipped 1% year over year. A 6.9% rise in organic sales was offset by an 8.3% headwind from foreign exchange. Organic maintenance and repair sales grew 6.5%, and organic modernization sales rose 8.8% from the prior-year quarter.
Adjusted operating margin registered an improvement of 70 bps year over year to 23.9%, driven by higher volume, favorable pricing and productivity, partially offset by wage inflation.
2022 Highlights
Earnings were $3.17 per share in the year, reflecting an increase of 7.5% from 2021. Net sales of $13.69 billion declined 4.3% and decreased 3.3% on an adjusted basis. Organic sales witnessed 2.5% growth.
New Equipment sales were down 8.8% and down 6.9% on an adjusted basis. Service sales were down 0.6% and down 0.5% on an adjusted basis.
Financial Position
Otis had cash and cash equivalents of $1.19 billion as of Dec 31, 2022. This compares unfavorably with 2021-end numbers of $1.57 billion. Long-term debt was $6.098 billion as of Dec 31, 2022, down from $7.25 billion in the 2021-end.
Net cash flows provided by operating activities were $464 million for the fourth quarter, up from $277 million a year ago. In 2022, the metric was $1,560 million, down from $1,750 million in 2021.
Free cash flow (FCF) totaled $430 million for the quarter, up from $236 million a year ago. In 2022, FCF was $1.44 billion, down from $1.59 billion in 2021.
2023 Guidance
For 2023, the company expects net sales to be within $13.8-$14.1 billion. The new projection indicates 1.5-4% year-over-year growth. Organic sales growth is projected to be 4-6% (up 3-5% for New Equipment and up 5-7% for Service). Adjusted operating profit is projected to be $2.2-$2.25 billion, up $130 to $175 million at constant currency and up $70 to $130 million at actual currency.
Adjusted earnings per share are anticipated to be $3.35-$3.50, suggesting 6-10% year-over-year growth. The adjusted effective tax rate is likely to be 26-26.5%. Free cash flow is expected to be $1.5-$1.55 billion.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -8.89% due to these changes.
VGM Scores
Currently, Otis Worldwide has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, 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 D. 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.
Performance of an Industry Player
Otis Worldwide is part of the Zacks Building Products - Miscellaneous industry. Over the past month, United Rentals (URI - Free Report) , a stock from the same industry, has gained 3.2%. The company reported its results for the quarter ended December 2022 more than a month ago.
United Rentals reported revenues of $3.3 billion in the last reported quarter, representing a year-over-year change of +18.7%. EPS of $9.74 for the same period compares with $7.39 a year ago.
For the current quarter, United Rentals is expected to post earnings of $7.93 per share, indicating a change of +38.4% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.7% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for United Rentals. Also, the stock has a VGM Score of A.