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Otis Worldwide (OTIS) Down 5.2% Since Last Earnings Report: Can It Rebound?
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A month has gone by since the last earnings report for Otis Worldwide (OTIS - Free Report) . Shares have lost about 5.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Otis Worldwide due for a breakout? 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 Worldwide started 2023 on a solid note. The company’s earnings and sales surpassed the Zacks Consensus Estimate. Its quarterly results reflected 10th consecutive quarters of organic sales growth along with solid Service performance contributing to mid-single digit adjusted earnings per share growth.
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.
Earnings & Revenue Discussion
The company reported quarterly adjusted earnings of 80 cents per share, surpassing the consensus estimate of 74 cents by 8.1% and increasing 5.3% from the year-ago quarter’s figure of 76 cents. The upside was mainly driven by gains from operational improvement, a lower effective tax rate and share count, partially offset by headwinds from foreign exchange translation. Net sales of $3.35 billion topped the consensus mark of $3.28 million by 2.1% but declined 2% on a year-over-year basis. Adjusted net sales slipped 0.4% year over year. Organically, net sales rose 3.6% year over year for the quarter. Currency headwinds impacted sales by 4.4%.
Adjusted operating margin contracted 50 basis points (bps) year over year to 15.5%, as benefits from favorable segment mix were offset by lower New Equipment margins and headwinds associated with corporate costs.
Segment Details
New Equipment’s net sales of $1.3 billion fell 8.1%, and adjusted net sales of $1.3 billion declined 4.9% from the prior-year period’s levels. Organically, sales remained on par with the year-ago level.
Organic sales were up in the high-single digit in the EMEA, down by mid-single digit in the Americas, and down by a low-single digit in Asia. Asia Pacific witnessed solid performance, while China witnessed a decline in organic sales.
New Equipment orders were up 7% at constant currency in the quarter. The metric was up by 27% in Asia Pacific, 1% in EMEA and 15% in the Americas. However, China witnessed a 3% decline in New Equipment orders.
The New Equipment backlog was up 3% in the quarter, and the adjusted backlog at constant currency increased 10%.
Adjusted operating margin contracted 150 bps year over year to 5.3% due to unfavorable regional and product mix.
Service’s net sales grew 2.4% to $2.04 billion and adjusted revenues improved 2.7% year over year. A 6.3% rise in organic sales was offset by a 4.1% headwind from foreign exchange. Organic maintenance and repair sales grew 7%, and organic modernization sales rose 3.3% from the prior-year quarter.
Adjusted operating margin registered an improvement of 40 bps year over year to 23.5%, driven by higher volume, favorable pricing and productivity, partially offset by wage inflation.
Financial Position
Otis had cash and cash equivalents of $1.12 billion as of Mar 31, 2023. This compares unfavorably with 2022-end numbers of $1.19 billion. Long-term debt was $6.12 billion as of Mar 31, 2023, up from $6.1 billion in 2022-end.
Net cash flows provided by operating activities were $278 million for the March quarter, down from $504 million a year ago.
Free cash flow (FCF) totaled $253 million for the quarter, down from $474 million a year ago.
2023 Guidance
For 2023, the company expects net sales to be within $13.9-$14.2 billion. The new projection indicates 2.5-4.5% year-over-year growth. Organic sales growth is still 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 $90 to $150 million at actual currency.
Adjusted earnings per share are now anticipated to be $3.40-$3.50 versus $3.35-$3.50 expected earlier. The updated outlook suggests 7-10% year-over-year growth. The adjusted effective tax rate is likely to be 26-26.5%. FCF is expected to be $1.5-$1.55 billion.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
VGM Scores
Currently, Otis Worldwide has a great Growth Score of A, though it is lagging a lot 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 B. 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 has been net zero. Notably, Otis Worldwide has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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Otis Worldwide (OTIS) Down 5.2% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Otis Worldwide (OTIS - Free Report) . Shares have lost about 5.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Otis Worldwide due for a breakout? 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 Q1 Earnings & Sales Beat Estimates, View Solid
Otis Worldwide started 2023 on a solid note. The company’s earnings and sales surpassed the Zacks Consensus Estimate. Its quarterly results reflected 10th consecutive quarters of organic sales growth along with solid Service performance contributing to mid-single digit adjusted earnings per share growth.
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.
Earnings & Revenue Discussion
The company reported quarterly adjusted earnings of 80 cents per share, surpassing the consensus estimate of 74 cents by 8.1% and increasing 5.3% from the year-ago quarter’s figure of 76 cents. The upside was mainly driven by gains from operational improvement, a lower effective tax rate and share count, partially offset by headwinds from foreign exchange translation. Net sales of $3.35 billion topped the consensus mark of $3.28 million by 2.1% but declined 2% on a year-over-year basis. Adjusted net sales slipped 0.4% year over year. Organically, net sales rose 3.6% year over year for the quarter. Currency headwinds impacted sales by 4.4%.
Adjusted operating margin contracted 50 basis points (bps) year over year to 15.5%, as benefits from favorable segment mix were offset by lower New Equipment margins and headwinds associated with corporate costs.
Segment Details
New Equipment’s net sales of $1.3 billion fell 8.1%, and adjusted net sales of $1.3 billion declined 4.9% from the prior-year period’s levels. Organically, sales remained on par with the year-ago level.
Organic sales were up in the high-single digit in the EMEA, down by mid-single digit in the Americas, and down by a low-single digit in Asia. Asia Pacific witnessed solid performance, while China witnessed a decline in organic sales.
New Equipment orders were up 7% at constant currency in the quarter. The metric was up by 27% in Asia Pacific, 1% in EMEA and 15% in the Americas. However, China witnessed a 3% decline in New Equipment orders.
The New Equipment backlog was up 3% in the quarter, and the adjusted backlog at constant currency increased 10%.
Adjusted operating margin contracted 150 bps year over year to 5.3% due to unfavorable regional and product mix.
Service’s net sales grew 2.4% to $2.04 billion and adjusted revenues improved 2.7% year over year. A 6.3% rise in organic sales was offset by a 4.1% headwind from foreign exchange. Organic maintenance and repair sales grew 7%, and organic modernization sales rose 3.3% from the prior-year quarter.
Adjusted operating margin registered an improvement of 40 bps year over year to 23.5%, driven by higher volume, favorable pricing and productivity, partially offset by wage inflation.
Financial Position
Otis had cash and cash equivalents of $1.12 billion as of Mar 31, 2023. This compares unfavorably with 2022-end numbers of $1.19 billion. Long-term debt was $6.12 billion as of Mar 31, 2023, up from $6.1 billion in 2022-end.
Net cash flows provided by operating activities were $278 million for the March quarter, down from $504 million a year ago.
Free cash flow (FCF) totaled $253 million for the quarter, down from $474 million a year ago.
2023 Guidance
For 2023, the company expects net sales to be within $13.9-$14.2 billion. The new projection indicates 2.5-4.5% year-over-year growth. Organic sales growth is still 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 $90 to $150 million at actual currency.
Adjusted earnings per share are now anticipated to be $3.40-$3.50 versus $3.35-$3.50 expected earlier. The updated outlook suggests 7-10% year-over-year growth. The adjusted effective tax rate is likely to be 26-26.5%. FCF is expected to be $1.5-$1.55 billion.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
VGM Scores
Currently, Otis Worldwide has a great Growth Score of A, though it is lagging a lot 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 B. 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 has been net zero. Notably, Otis Worldwide has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.