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Why Is Otis Worldwide (OTIS) Down 7.6% Since Last Earnings Report?
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A month has gone by since the last earnings report for Otis Worldwide (OTIS - Free Report) . Shares have lost about 7.6% 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 Q2 Earnings & Revenues Top Estimates, '23 View Up
Otis’ second quarter earnings and sales surpassed the Zacks Consensus Estimate. Its quarterly results reflected 11th consecutive quarters of organic sales growth and solid operating margin expansion contributing to mid-single digit adjusted earnings per share (EPS) 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 EPS of 92 cents, surpassing the consensus estimate of 86 cents by 7% and increasing 7% from the year-ago quarter’s figure of 86 cents. The upside was mainly driven by gains from operational improvement and share count, partially offset by headwinds from foreign exchange translation.
Net sales of $3.72 billion topped the consensus mark of $3.55 million by 4.8% and improved 6.7% on a year-over-year basis. Adjusted net sales also advanced 7.7% year over year. Organically, net sales rose 9.5% year over year for the quarter. Currency headwinds impacted sales by 2.1%.
Adjusted operating margin expanded 20 basis points (bps) year over year to 15.9%. Our model predicted the adjusted operating margin to expand 30 bps year over year to 16%. Benefits from favorable segment mix were partly offset by headwinds associated with corporate costs in the quarter.
Segment Details
New Equipment’s net sales of $1.6 billion increased 4.6% and adjusted net sales of $1.6 billion grew 6.3% from the prior-year period’s levels. Organically, sales advanced 9.5%. Our model predicted organic sales for New Equipment segment to grow 5.2% in the quarter.
Organic sales were up in the high-single digit in the Americas and EMEA, respectively. The metric was up by low teen digit in Asia.
New Equipment orders were down 12% at constant currency in the quarter. The metric was up by 3% in Asia, down 12% in EMEA and down 32% in the Americas. The New Equipment adjusted backlog at constant currency increased 5% year over year and 3% sequentially.
Adjusted operating margin contracted 10 bps year over year to 7.4% due to unfavorable regional and product mix, foreign exchange impact and higher SG&A expenses.
Service’s net sales grew 8.3% to $2.12 billion and adjusted revenues improved 8.8% year over year. A 9.4% rise in organic sales was offset by a 1.1% headwind from foreign exchange. Our model predicted organic sales for Service segment to grow 6.6% in the quarter. Meanwhile, organic maintenance and repair sales grew 9.1% and organic modernization sales rose 10.9% in the second quarter from the prior-year quarter.
Adjusted operating margin registered an improvement of 50 bps year over year to 23.6%, driven by higher volume, favorable pricing and productivity, partially offset by wage inflation and higher material costs.
Financial Position
Otis had cash and cash equivalents of $1.22 billion as of Jun 30, 2023. This compares favorably with 2022-end numbers of $1.19 billion. Long-term debt was $6.12 billion as of Jun 30, 2023, up from $6.1 billion at 2022-end.
Net cash flows provided by operating activities were $446 million for the June quarter, up from $353 million a year ago.
Free cash flow (FCF) totaled $409 million for the quarter, up from $326 million a year ago.
2023 Guidance
For 2023, the company expects adjusted net sales to be within $14-14.3 billion. The new projection indicates 3.5-5.5% year-over-year growth (2.5-4.5% growth expected earlier). Organic sales growth is now projected to be 4.5-6% (up 3-5% for New Equipment and up 6-7% for Service). Adjusted operating profit is projected to be up $155 to $175 million at constant currency.
Adjusted EPS is now anticipated to be $3.45-$3.50 versus $3.40-$3.50 expected earlier. The updated outlook suggests 9-10% year-over-year growth. 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
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. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile 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 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.
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Why Is Otis Worldwide (OTIS) Down 7.6% Since Last Earnings Report?
A month has gone by since the last earnings report for Otis Worldwide (OTIS - Free Report) . Shares have lost about 7.6% 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 Q2 Earnings & Revenues Top Estimates, '23 View Up
Otis’ second quarter earnings and sales surpassed the Zacks Consensus Estimate. Its quarterly results reflected 11th consecutive quarters of organic sales growth and solid operating margin expansion contributing to mid-single digit adjusted earnings per share (EPS) 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 EPS of 92 cents, surpassing the consensus estimate of 86 cents by 7% and increasing 7% from the year-ago quarter’s figure of 86 cents. The upside was mainly driven by gains from operational improvement and share count, partially offset by headwinds from foreign exchange translation.
Net sales of $3.72 billion topped the consensus mark of $3.55 million by 4.8% and improved 6.7% on a year-over-year basis. Adjusted net sales also advanced 7.7% year over year. Organically, net sales rose 9.5% year over year for the quarter. Currency headwinds impacted sales by 2.1%.
Adjusted operating margin expanded 20 basis points (bps) year over year to 15.9%. Our model predicted the adjusted operating margin to expand 30 bps year over year to 16%. Benefits from favorable segment mix were partly offset by headwinds associated with corporate costs in the quarter.
Segment Details
New Equipment’s net sales of $1.6 billion increased 4.6% and adjusted net sales of $1.6 billion grew 6.3% from the prior-year period’s levels. Organically, sales advanced 9.5%. Our model predicted organic sales for New Equipment segment to grow 5.2% in the quarter.
Organic sales were up in the high-single digit in the Americas and EMEA, respectively. The metric was up by low teen digit in Asia.
New Equipment orders were down 12% at constant currency in the quarter. The metric was up by 3% in Asia, down 12% in EMEA and down 32% in the Americas. The New Equipment adjusted backlog at constant currency increased 5% year over year and 3% sequentially.
Adjusted operating margin contracted 10 bps year over year to 7.4% due to unfavorable regional and product mix, foreign exchange impact and higher SG&A expenses.
Service’s net sales grew 8.3% to $2.12 billion and adjusted revenues improved 8.8% year over year. A 9.4% rise in organic sales was offset by a 1.1% headwind from foreign exchange. Our model predicted organic sales for Service segment to grow 6.6% in the quarter.
Meanwhile, organic maintenance and repair sales grew 9.1% and organic modernization sales rose 10.9% in the second quarter from the prior-year quarter.
Adjusted operating margin registered an improvement of 50 bps year over year to 23.6%, driven by higher volume, favorable pricing and productivity, partially offset by wage inflation and higher material costs.
Financial Position
Otis had cash and cash equivalents of $1.22 billion as of Jun 30, 2023. This compares favorably with 2022-end numbers of $1.19 billion. Long-term debt was $6.12 billion as of Jun 30, 2023, up from $6.1 billion at 2022-end.
Net cash flows provided by operating activities were $446 million for the June quarter, up from $353 million a year ago.
Free cash flow (FCF) totaled $409 million for the quarter, up from $326 million a year ago.
2023 Guidance
For 2023, the company expects adjusted net sales to be within $14-14.3 billion. The new projection indicates 3.5-5.5% year-over-year growth (2.5-4.5% growth expected earlier). Organic sales growth is now projected to be 4.5-6% (up 3-5% for New Equipment and up 6-7% for Service). Adjusted operating profit is projected to be up $155 to $175 million at constant currency.
Adjusted EPS is now anticipated to be $3.45-$3.50 versus $3.40-$3.50 expected earlier. The updated outlook suggests 9-10% year-over-year growth. 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
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. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile 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 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.