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Otis Worldwide (OTIS) Up 12.5% Since Last Earnings Report: Can It Continue?
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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 12.5% 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, Modernization Orders Up 13%
Otis Worldwide reported impressive results in third-quarter 2023. Its earnings and net sales surpassed the Zacks Consensus Estimate and rose on a year-over-year basis. Its quarterly results reflected 12 consecutive quarters of organic sales growth and solid operating margin expansion, which contributed to high-teens adjusted earnings per share (“EPS”) growth.
The company remains focused on strong portfolio growth and generating a solid New Equipment and Modernization backlog. It also intends to expand operating margins, return cash to shareholders through a capital-allocation strategy and pursue ESG goals further.
Earnings & Revenue Discussion
The company reported quarterly earnings of 95 cents per share, which surpassed the consensus estimate of 87 cents by 9.2% and increased 18.8% from the year-ago quarter’s figure of 80 cents. The upside was mainly driven by operational improvement, a lower share count and effective tax rate improvement.
Net sales of $3.52 billion topped the consensus mark of $3.48 million by 1.2% and rose 5.4% on a year-over-year basis. Adjusted net sales grew 5.9% year over year. Organically, net sales rose 5.2% year over year in the quarter. Currency headwinds benefited sales by 0.6%.
Adjusted operating margin expanded 60 basis points (bps) to 16.9% from the year-ago period’s level, backed by the Service unit’s favorable performance and segment mix, partially offset by headwinds in corporate costs. Our model predicted adjusted operating margin to expand 30 bps year over year to 16%.
Segment Details
New Equipment’s net sales of $1.44 billion fell 0.8%, but adjusted net sales remained stable from the prior-year period. A 1% increase in organic sales was partially offset by a 0.9% headwind from foreign exchange.
New Equipment orders were down 10% at constant currency. Growth in EMEA and Asia Pacific was more than offset by softness in the Americas and China.
New Equipment’s adjusted backlog at constant currency increased 2% year over year. Adjusted operating margin was flat year over year at 7.2%.
Service’s net sales increased 10.1% to $2.09 billion. Adjusted revenues rose 10.3% year over year. An 8.4% rise in organic sales and an 8.4% benefit from foreign exchange helped the top line. Organic maintenance and repair sales grew 8.6%, and organic modernization sales rose 7.6% from the prior year quarter.
Modernization orders were up 13% at constant currency during the reported quarter. Modernization backlog at constant currency increased 15% year over year.
Adjusted operating margin registered an improvement of 90 bps year over year to 24.8%, driven by higher volume, favorable pricing and productivity, partially offset by labor inflation and higher material costs.
Financial Position
Otis had cash and cash equivalents of $1.64 billion as of Sep 30, 2023. This compared unfavorably with the 2022-end figure of $1.19 billion. Long-term debt was $6.82 billion as of Sep 30, 2023, up from $6.1 billion at 2022-end.
Net cash flows provided by operating activities were $306 million for the September quarter, up from $239 million a year ago.
Free cash flow (“FCF”) totaled $272 million for the quarter, up from $215 million a year ago.
2023 Guidance Revised
For 2023, the company now expects adjusted net sales to be nearly $14.1 billion compared with $14-14.3 billion expected earlier. The new projection indicates approximately 4% growth versus 3.5-5.5% growth expected earlier. Organic sales growth is projected to be 5.5% (up 3% for New Equipment and up 7.5% for Service).
Adjusted operating profit is projected to be up $170 million at constant currency versus $155-$175 million expected earlier.
Adjusted EPS is now anticipated to be $3.52 versus $3.45-$3.50 expected earlier. The updated outlook suggests 11% year-over-year growth. FCF is expected to be $1.5 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
VGM Scores
At this time, Otis Worldwide has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.
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Otis Worldwide (OTIS) Up 12.5% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Otis Worldwide (OTIS - Free Report) . Shares have added about 12.5% 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, Modernization Orders Up 13%
Otis Worldwide reported impressive results in third-quarter 2023. Its earnings and net sales surpassed the Zacks Consensus Estimate and rose on a year-over-year basis. Its quarterly results reflected 12 consecutive quarters of organic sales growth and solid operating margin expansion, which contributed to high-teens adjusted earnings per share (“EPS”) growth.
The company remains focused on strong portfolio growth and generating a solid New Equipment and Modernization backlog. It also intends to expand operating margins, return cash to shareholders through a capital-allocation strategy and pursue ESG goals further.
Earnings & Revenue Discussion
The company reported quarterly earnings of 95 cents per share, which surpassed the consensus estimate of 87 cents by 9.2% and increased 18.8% from the year-ago quarter’s figure of 80 cents. The upside was mainly driven by operational improvement, a lower share count and effective tax rate improvement.
Net sales of $3.52 billion topped the consensus mark of $3.48 million by 1.2% and rose 5.4% on a year-over-year basis. Adjusted net sales grew 5.9% year over year. Organically, net sales rose 5.2% year over year in the quarter. Currency headwinds benefited sales by 0.6%.
Adjusted operating margin expanded 60 basis points (bps) to 16.9% from the year-ago period’s level, backed by the Service unit’s favorable performance and segment mix, partially offset by headwinds in corporate costs. Our model predicted adjusted operating margin to expand 30 bps year over year to 16%.
Segment Details
New Equipment’s net sales of $1.44 billion fell 0.8%, but adjusted net sales remained stable from the prior-year period. A 1% increase in organic sales was partially offset by a 0.9% headwind from foreign exchange.
New Equipment orders were down 10% at constant currency. Growth in EMEA and Asia Pacific was more than offset by softness in the Americas and China.
New Equipment’s adjusted backlog at constant currency increased 2% year over year. Adjusted operating margin was flat year over year at 7.2%.
Service’s net sales increased 10.1% to $2.09 billion. Adjusted revenues rose 10.3% year over year. An 8.4% rise in organic sales and an 8.4% benefit from foreign exchange helped the top line. Organic maintenance and repair sales grew 8.6%, and organic modernization sales rose 7.6% from the prior year quarter.
Modernization orders were up 13% at constant currency during the reported quarter. Modernization backlog at constant currency increased 15% year over year.
Adjusted operating margin registered an improvement of 90 bps year over year to 24.8%, driven by higher volume, favorable pricing and productivity, partially offset by labor inflation and higher material costs.
Financial Position
Otis had cash and cash equivalents of $1.64 billion as of Sep 30, 2023. This compared unfavorably with the 2022-end figure of $1.19 billion. Long-term debt was $6.82 billion as of Sep 30, 2023, up from $6.1 billion at 2022-end.
Net cash flows provided by operating activities were $306 million for the September quarter, up from $239 million a year ago.
Free cash flow (“FCF”) totaled $272 million for the quarter, up from $215 million a year ago.
2023 Guidance Revised
For 2023, the company now expects adjusted net sales to be nearly $14.1 billion compared with $14-14.3 billion expected earlier. The new projection indicates approximately 4% growth versus 3.5-5.5% growth expected earlier. Organic sales growth is projected to be 5.5% (up 3% for New Equipment and up 7.5% for Service).
Adjusted operating profit is projected to be up $170 million at constant currency versus $155-$175 million expected earlier.
Adjusted EPS is now anticipated to be $3.52 versus $3.45-$3.50 expected earlier. The updated outlook suggests 11% year-over-year growth. FCF is expected to be $1.5 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
VGM Scores
At this time, Otis Worldwide has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.