The operator introduces the participants of the conference call and reminds listeners of important information. Judy Marks, Otis' executive, welcomes Cristina Mendez to the call and expresses gratitude to Anurag Maheshwari. She then moves on to discuss the company's second quarter earnings highlights.

In the second quarter, Otis performed well despite economic challenges in China. The Service segment drove strong performance, with mid-single digit organic sales growth and a 15% increase in adjusted EPS. The company also saw growth in their maintenance portfolio and modernization backlog. They generated $353 million in adjusted free cash flow and returned $300 million to shareholders through share repurchases. Otis also published their 2023 ESG report, outlining their progress towards their 13 ESG goals and reducing greenhouse gas emissions. In terms of orders, New Equipment orders were down 11%, with growth in EMEA and Asia-Pacific offset by declines in the Americas and China. This was attributed to elevated interest rates in the Americas.

In the second quarter, economic challenges in China affected new equipment orders, but orders grew in Asia-Pacific and EMEA. The Services segment showed strong progress with growth in portfolio, modernization orders, and backlog. Exciting customer highlights included a project in India for a luxury development and major projects in the United States, Germany, and China. In the US, Otis is installing elevators and escalators at San Francisco International Airport to increase passenger capacity. In Germany, they are installing escalators for the City of Stuttgart, and in China, they are working on multiple projects for the Shanghai Metro.

In the second quarter, Otis reported net sales of $3.6 billion, with a 1% decrease in organic sales. However, adjusted operating profit, excluding a foreign exchange headwind, increased by $38 million due to strong performance in the Service segment. Adjusted EPS also grew by approximately 15%, driven by operational improvements, lower taxes, and a decrease in the number of shares. New equipment sales were down 9%, with growth in APAC and the Americas offset by declines in EMEA and China. Service sales saw organic growth of 5.1%, with growth in all regions and lines of business. MOD organic sales increased by 6% in the quarter and 8% in the first half.

The company's new equipment operating profit decreased due to lower volume and mix, but was offset by improved margins from pricing, productivity, and cost control. Service operating profit increased due to higher volume and favorable pricing, leading to overall margin expansion. The company's focus on cost control and uplift initiatives resulted in lower SG&A expenses and improved margins. Despite challenges in the China market, the company generated strong free cash flow in the second quarter and expects to reverse working capital by the end of the year.

In the sixth paragraph, the company reports a 1.2% growth in organic sales, led by strong performance in the Americas, EMEA, and Asia Pacific. This, along with improvements in productivity and pricing, resulted in a 100 basis point increase in margins and a 13% growth in EPS. The company's CEO then discusses the updated industry outlook, with expectations for the New Equipment market to be down in the Americas and EMEA, but with continued strength in the service market. The company also revises its 2024 financial outlook, with sales expected to be in the range of $14.3 billion to $14.5 billion and organic sales growth of 1% to 3%. Adjusted operating profit is expected to be up $135 million to $175 million at actual currency and up $160 million to $190 million at constant currency.

The company has adjusted its EPS and free cash flow outlook for the year, with expected growth in both areas. They have also provided an update on their Project Uplift program, which is on track and expected to result in significant cost savings. The sales outlook has been revised, with total organic sales expected to increase by 1% to 3%, driven by growth in the Americas, EMEA, and Asia-Pacific regions, while New Equipment sales are expected to decline due to market conditions in China. Service sales are expected to grow by 6% to 7%, with strong orders and backlog supporting this growth.

The company is expecting an increase in operating profit at constant currency, with a focus on productivity and service volume. Despite weakness in China, the company expects overall adjusted operating profit margin expansion and improved cash flow. The company has also raised its outlook for adjusted EPS, driven by operational performance and reductions in the effective tax rate and share count. The company is confident in its ability to continue performing in the face of macro headwinds and is focused on growing its portfolio, leveraging its backlog, and driving productivity.

The company is on track to meet its full year outlook of 10% EPS growth. Anurag Maheshwari's departure was mentioned but no details were given. The company's Service business in China is growing in the mid-single digits, with MOD orders up high-single digits and sales up double digits. The company has been implementing a multiyear strategy to focus on Service in China and has seen positive results, with a third of their revenue now coming from Service. The company's portfolio in China has more than doubled and is continuing to grow.

The company's service strategy in China is performing well and is expected to continue growing at a double-digit rate in the medium term. However, the New Equipment market remains weak, with a projected decline of 10-15% for the full year. The company has been able to manage costs effectively in this competitive market, but is still expecting a decrease in revenue. Despite this, the company's profitability has remained resilient due to its service-driven model and strong control over controllable factors.

The speaker responds to a question about the company's strategy in China, stating that there has been no change and they continue to focus on gaining share while also preserving margin. They mention their success in gaining share and their agents and distributors taking on modernization. They also mention that they will not take on loss-making units for the sake of share gain. The speaker then hands over to another speaker who adds that the new equipment market in China is challenging and revenue was down in the second quarter.

The company has been able to manage the volume headwind through productivity and growing their service business, which has helped preserve margins and profits. The Middle East business has picked up and is a highlight for the EMEA region. The decline in free cash flow is primarily due to a slowdown in new equipment orders and the faster growth of the service business, which requires payment after the work is performed. The company expects to generate $825 million in GAAP net income for the second half of the year.

The company is expecting to reverse $200 million in working capital in order to reach $1.6 billion in free cash. They hope to do better than expected in receivables and New Equipment orders to achieve this goal. The next question is about the company's New Equipment organic sales outlook, particularly in the Americas. The backlog was down 3% in June, but the company is still expecting mid-single digit growth in revenue this year. The Americas backlog is up low-single digit, while EMEA and Asia-Pac are also seeing growth. However, China is down, which is affecting overall growth in Asia.

The company's New Equipment outlook for 2024 is expected to be flat or slightly down due to a potential decrease in backlog in the second half. However, the company has a strong line of sight for second half orders, particularly in the Americas region. The Americas backlog is up and New Equipment sales are expected to increase in the second half. The company also anticipates positive New Equipment orders in the Americas based on proposal activity and awarded projects. In terms of EPS, the first half and second half are expected to be equal in terms of operational performance. The Q3 EPS is expected to be similar to Q4, with interest expenses and tax rate remaining consistent.

Judith Marks, CEO of Siemens, discusses the company's expected EPS for the quarter and full year. She clarifies that the backlog total ex-China is up low-single digit, but the Americas backlog is down. Anurag Bhagania, CFO of Siemens, adds that the pricing in China is down by 10%, but the company is able to offset this with cost reductions and productivity improvements. They do not anticipate any significant impact on services growth in the near future.

The Otis service portfolio in China has been growing steadily, with over 400,000 units currently under their management. This growth is due to both conversion rates and recapturing non-Otis units. The company expects to continue this growth in the medium-term, with a focus on volume and cost management to maintain profitability.

Judith Marks, CEO of the company, responds to a question about the Modernization backlog from Joe O'Dea of Wells Fargo. She explains that last year, they added delivering Modernization value as a fifth strategic imperative to improve MOD margins. They have been successful in meeting and exceeding new equipment margins and have a medium-term goal of reaching at least 10% margins. The orders and backlog for MOD are increasing, but they need to focus on converting these orders to sales and improving the pace of installation. Despite it being early days, they are confident in the MOD strategy and expect continued growth in the future.

Judith Marks, CEO of Otis Elevator Company, discusses the current state of the Chinese market and how it has affected their business. She notes that the market has been declining for three consecutive years, with a projected volume of 425,000 to 450,000 units for the current year. However, she is proud of how her team has managed to maintain profitability and reduce costs during this time. She also mentions the Chinese government's efforts to stimulate the market, but acknowledges that it has not yet had a significant impact. Despite this, she remains confident in their strategy and their focus on service and modernization. She also mentions hosting Premier Li at one of their facilities earlier in the week.

The focus of Otis in China has been on urban renewal and modernization, as well as driving energy-efficient solutions. With 10 million aging units in the installed base, there is a significant demand for modernization that Otis is prepared for. The growth in MODs can be attributed to aging equipment and obsolescence, with the largest market being in EMEA. Otis has industrialized their Gen 3 product, making it available globally for both new equipment and modernization opportunities.

The company has introduced new products, which has helped to educate the sales team and improve margins. They have also established relationships with customers through their service portfolio and are able to be proactive in addressing their needs. The maintenance and repair business has seen slower growth compared to previous quarters, possibly due to a decrease in above trend growth in the repair business.

In the paragraph, the speaker discusses the growth of the company and its expectations for the second half of the year. They mention that repair growth has been exceeding 10% for the past three years and they expect it to continue at a high-single digit or double-digit rate in the back half of the year. They also mention a 10% decrease in prices in China, which is similar to a competitor's report. The speaker is then asked about new equipment order trends by geography, and they mention that there has been weakness in China and America but growth in EMEA and Asia-Pacific, excluding China.

Judith Marks, CEO of Siemens AG, provides some color on pricing trends in China, stating that the ISPs do not play a role in new equipment pricing. She also gives an update on the company's performance in EMEA and APAC, noting solid orders and backlog in Central Europe, Southern Europe, and the Middle East, with some weakness in France and the UK. In APAC, there was some slowing in India due to elections, but overall orders were up in Japan and Australasia. Marks expects orders to pick up in the Americas in the third quarter and for continued growth in APAC. She also praises the EMEA team for their strong performance in a challenging market.

The company has been winning many infrastructure jobs in cities such as Shanghai, Stuttgart, and San Francisco, which includes a full product line of low-rise, mid-rise, high-rise, and escalators. These jobs also come with longer service commitments. The Americas are expected to rebound, while China will continue to face challenges. The company will have a better understanding of their performance in 2025 and 2026 based on their backlog and orders in the second half of 2024. During the second quarter, the margin for New Equipment expanded despite a 9% decrease in revenue. This was due to a better mix of business, with China experiencing a decline in volume. New Equipment pricing outside of China also contributed to the higher margin.

The team at Otis was able to offset a substantial revenue decrease in China by controlling what they could control, such as pricing, commodities, and productivity. China only accounts for 15% of their total revenue, so the other regions are still growing. The organic growth in maintenance was 4.9%, with 70 basis points above portfolio growth, which was consistent with previous quarters. Pricing was 3.5%, without taking into account mix and churn.

The speaker explains that the company's growth in the first half of the year was 4.9% slower due to previous year's repair business. However, they expect a 6.5% to 7% growth in the second half due to a 4% growth in portfolio, good pricing, and a return to high-single digit and double-digit repair business. The speaker thanks Anurag for his service and introduces Cristina as the new partner. They look forward to meeting with investors and analysts in the future. The speaker concludes by wishing everyone to stay safe and well.

This summary was generated with AI and may contain some inaccuracies.