The paragraph is a transcript from Otis Worldwide Corporation's First Quarter 2025 Earnings Conference Call. The call is hosted by Rob Quartaro, Vice President of Investor Relations, with presentations from Judy Marks, the Chair, CEO, and President, and Cristina Mendez, the Executive Vice President and CFO. It contains financial discussions from continuing operations excluding certain items. The presentation also includes forward-looking statements subject to various risks and uncertainties, with references to their SEC filings for more details. Judy Marks highlights Otis Worldwide's fifth anniversary as an independent public company, acknowledging the challenges and achievements since their spin-off during the global pandemic.

The paragraph highlights the achievements and financial performance of Otis Worldwide Corporation in recent years and focuses on the first quarter results of a particular year. Despite challenges posed by the pandemic, the company successfully demonstrated the resilience of its business model, expanded operating profit margins, and increased adjusted earnings per share significantly since 2019. The company doubled its dividend and returned $6 billion in capital to shareholders through dividends and share repurchases. In Q1, organic sales in service grew by 4%, while new equipment sales declined. Modernization orders increased by 12%, and the backlog grew by 14% at constant currency. The company also achieved a 40 basis-point expansion in adjusted operating margin and a 5% growth in adjusted EPS. Otis generated $186 million in adjusted free cash flow and repurchased $250 million in shares, with an 8% dividend increase announced. The company was recognized by Fortune and the Wall Street Journal for its management and was positioned optimistically for future opportunities.

The paragraph discusses the company's order performance, highlighting a 2% growth in combined new equipment and modernization orders, driven mainly by modernization. Despite a 1% decline in new equipment orders, the backlog remains historically high. The Americas showed strong growth, particularly in North and Latin America, while Asia Pacific saw robust demand led by India and Southeast Asia. However, China experienced a significant decline in orders. In EMEA, new equipment orders decreased due to challenges in Europe, although the Middle East showed strength. Excluding China, the new equipment backlog increased, and modernization orders rose 12%, with China performing well. The company is poised for a multiyear growth cycle in modernizations, as a significant portion of the global installed base ages, presenting opportunities across all regions.

The service portfolio of Otis Worldwide Corporation grew by 4% globally, with varied growth rates in different regions. The company undertook several notable projects in the first quarter, including elevator modernization at Christ the Redeemer in Brazil, revitalization of escalators for the Arlanda Express Rail Link in Stockholm, supplying escalators and IoT-connected elevators for the Hangzhou Metro in China, and securing a contract for over 470 elevators and escalators in India for the Prestige Group. These projects highlight Otis's focus on safety, modernization, and expansion in the new equipment business.

In the first quarter, Otis Worldwide Corporation reported net sales of $3.3 billion, with flat organic sales compared to the previous year. The company's adjusted operating profit, excluding a $16 million foreign exchange impact, rose by 3%, with a 40 basis point improvement in the operating profit margin to 16.7%. Adjusted EPS increased by 5%, or $0.04, driven by operational performance and a lower share count. Service sales grew by 4%, aided by a 3% increase in maintenance and repair services. Despite muted repair growth, service operating profit rose by $29 million with a margin expansion to 24.6%. In contrast, new equipment sales dropped by 7%, primarily due to declines in China and the Americas, although EMEA and APAC regions showed growth.

The article discusses the current and future market outlook for a company, highlighting regional declines and challenges. Despite a significant drop in organic sales in China due to market conditions and strict credit controls, the company expects market stability later this year and sales stabilization by 2026. The new equipment operating profit decreased, impacted by lower volume and regional mix, while productivity improvements and lower commodity costs partially offset these challenges. Operating profit margins saw a slight increase. For 2025, the company anticipates a mid-single-digit decline in global new equipment demand, with particular weaknesses in China and the Americas, though low single-digit growth is expected in EMEA. The installed base is projected to continue growing mid-single digits, with a clear outlook based on past sales.

The paragraph provides a financial outlook for Otis Worldwide Corporation for 2025, predicting global growth and a total installed base of 23 million units. The company expects net sales to rise to $14.6-$14.8 billion, partly due to favorable exchange rates, and adjusted operating profits to increase despite new US tariffs on Chinese imports. These tariffs are expected to negatively impact the new equipment business, although the service segment remains largely unaffected. Mitigation efforts, such as supplier negotiations and supply chain adjustments, are being implemented to minimize tariff impacts estimated at $45-$75 million. Local manufacturing primarily occurs in facilities like the one in South Carolina, although certain components are sourced from China due to a lack of local suppliers.

The paragraph outlines the company's financial outlook and strategies in response to current challenges. The expected impact on their finances is seen as temporary, as they have adjusted contract terms and pricing for new orders and can shift production to reduce costs. They anticipate an adjusted free cash flow of about $1.6 billion, mostly returned to shareholders through dividends and share repurchases. An 8% dividend increase was recently announced. The share repurchase target remains at $800 million for 2025, with $250 million already completed. Organic sales growth is projected at 2% to 4%, led by the Service segment. Regional forecasts vary, with declines expected in the Americas and Asia, but growth in EMEA. Service sales may grow 5% to 7%, with adjustments due to early-year challenges in repair work.

The company anticipates a reacceleration in repair activities later in the year, aiming for mid-single digit growth in maintenance and repair, supported by portfolio growth and pricing. Modernization organic sales are expected to increase in the low teens due to effective backlog execution. They have been transforming their operations, starting with the "Uplift" initiative and a China transformation program, which have significantly progressed. These initiatives aim to enhance process efficiencies and adapt to service opportunities, particularly in China. The company projects $90 million in in-year savings by 2025 and $230 million in annual run rate savings. Despite macroeconomic uncertainties, they expect solid profit and adjusted EPS growth, driven by their resilient service-driven business. Adjusted operating profit is projected to grow significantly, with foreign exchange rates mitigating tariff impacts.

The paragraph discusses the company's financial outlook, highlighting a 50 basis point margin expansion excluding 2025 tariffs, with only a 10 basis point increase when tariffs are considered due to equipment margin contraction. Service margins are expected to grow as they are largely unaffected by tariffs. The company's free cash flow and share buyback plans remain unchanged at $1.6 billion and $800 million, respectively. The adjusted EPS for 2025 is projected at $4 to $4.10, considering various factors including operational growth, foreign exchange benefits, and tariff impacts. Despite economic uncertainties, the company had a strong first quarter, driven by the service business, and is taking a conservative operational approach. The company is investing in its service model and adapting its new equipment cost structure amidst market challenges, such as those in China.

The article discusses EPS (Earnings Per Share) guidance for the year, predicting flat growth in the first half and stronger growth in the second half due to factors such as modernization backlog execution, cost savings initiatives, and improving trends in China and America's new equipment. They anticipate consistent maintenance results and improved repair sales throughout the year. During a Q&A session, Jeffrey Sprague from Vertical Research inquires about tariffs, and Cristina Mendez explains that the tariffs, which primarily affect material purchases, do not significantly impact their service business. The U.S. makes $550 million in material purchases annually, with $100 million from China, which faces two kinds of tariffs.

The paragraph discusses the financial impact of tariffs on steel and aluminum, estimating an annualized cost of $100 million due to tariffs from China and the rest of the world. The company is attempting to mitigate these costs through supply chain adjustments, alternative sourcing, and contract negotiations. Judy Marks mentions that the company experienced minimal tariffs in the first quarter and is carefully managing projects to avoid unexpected tariff costs. The approach involves detailed monitoring and negotiations with major customers to potentially adjust pricing in the backlog, but it is too early to count on these adjustments.

The paragraph discusses a conversation about the impact of tariffs on pricing strategies and any potential backlash against US companies in China. It explains that Otis Worldwide Corporation has not experienced any targeting or negative impact in China and maintains good relationships with local government officials. The company has increased prices across various sectors, including new equipment, spare parts, maintenance, and modernization, as part of its response to economic factors like tariffs. The focus is also on managing the backlog by adjusting pricing actions.

In the paragraph, Judy Marks and Cristina Mendez discuss the performance and expectations in the Chinese market and the company's pricing strategy. Judy notes that the Chinese market was down 15% in the first quarter, which is better than the previous quarter's 20% decline, and expects it to remain down 15% in the second quarter, with improvement anticipated in the second half of the year. They project about 375,000 units in China by 2025, focusing on balancing value, price, and service strategy. Cristina adds that their pricing strategy involves passing inflation costs through contracts, though inflation is softer this year, resulting in a price effect of around two points positive compared to three to four points last year. The maintenance and repair segment grew 3%, slightly affected by pricing and mix effects.

The paragraph involves a discussion among various individuals regarding operational challenges and financial implications related to tariffs on imports from China. Judy Marks mentions a strong repair backlog and the organization's efforts to accelerate execution after some delays due to organizational changes. Amit Mehrotra and Nigel Coe participate in the conversation, with Coe asking for clarification on tariff calculations. Cristina Mendez provides details, explaining that annual purchases from China amount to $100 million, with a $90 million annual impact from tariffs, influenced by varying tariff rates. She estimates that the impact for the year 2025 will be $60 million, offering further clarity on the financial metrics discussed.

The paragraph discusses the financial outlook and performance expectations for a company. The company anticipates a reduction in margin expansion from 60 basis points to 10 basis points in the new outlook. This includes an ARR increase of 50 basis points, contributing to a 40 basis point reduction. The company saw a strong Q1 with equipment margins rising by 100 basis points from the previous quarter, thanks to cost-cutting efforts that are expected to mitigate tariff impacts. The service segment is growing, albeit slightly slower than last year, due to changes in sales mix and increased investment in service excellence to drive portfolio growth and retention. Nigel Coe seeks clarification, and Cristina Mendez confirms the 10 basis point reduction pertains to the revised service margin forecast.

In the paragraph, Judy Marks discusses the company's performance on the services side, specifically regarding revenue growth. She attributes the growth primarily to the repair business, noting a slight impact from price increases. There has been a focus on improving retention rates, which had previously decreased to 92%, as retaining existing customers is crucial for business stability and growth. The company has invested in enhancing service excellence and made organizational changes to support this goal. Marks indicates that the repair backlog is up by 5%, and she expects repair revenue growth to improve as the year progresses, with quarter-over-quarter increases anticipated through 2025. Steve Tusa inquires if repair is the key to accelerating growth, to which Marks confirms it is.

The paragraph contains a conversation between several individuals discussing business performance and market conditions. The first speaker highlights an increase in productivity and service margins, suggesting the addition of field professionals was a good decision. Steve Tusa then asks about China's pricing trends, to which Cristina Mendez responds that prices in China are moderating, having decreased by 6% this quarter. She assures that the company maintains a disciplined pricing strategy and is confident in a price-cost neutral strategy for China's new equipment. Joe O'Dea asks about the outlook for new equipment in the Americas, noting project delays and seeking insight into the sectors and project sizes affected. Judy Marks responds by appreciating Joe's term "fluid" to describe the situation.

The paragraph discusses the performance of a company, presumably Otis Worldwide Corporation, in the North American new equipment market entering 2025. Despite the overall market decline in early 2025, with specific drops in the low and mid-rise commercial and infrastructure sectors, the company experienced an increase in new equipment orders, demonstrating strong market share gains. The success is attributed to customer focus, suitable products, and strong relationships. The company still faces a backlog from 2023 and early 2024, but expects improvements due to strong orders in late 2024 and early 2025. Additionally, uncertainty persists in the construction industry due to factors like inflation, future costs, and supply issues, impacting decisions in the US and Canada. The company remains focused on executing its backlog effectively.

The paragraph discusses the company's positive performance in recent quarters, focusing on the growth of modernization ("mod") orders in the Americas, which are anticipated to continue into the second quarter of 2025. Projects have been awarded but not yet booked, expected to contribute to strong mod sales. Joe O'Dea highlights the discretionary nature of mod work, noting it as a less risky investment compared to new equipment, due to more predictable costs and fewer unknowns. Judy Marks explains the growing demand for mods driven by the need to avoid breakdowns and enhance efficiency, resulting in a 12% increase in mod orders, a 14% rise in backlog, and a 10% increase in revenue. Outside North America, factors like safety compliance in Spain and other countries boost mod demand, while in China, the market is still developing.

The paragraph discusses the company's outlook for the year, highlighting that despite flat organic sales in the first quarter, they anticipate year-on-year acceleration in sales for the remainder of the year. Judy Marks emphasizes a strategy of consistent and resilient performance, with expectations of steady revenue growth in the subsequent quarters (Q2, Q3, Q4), boosted by increased conversion in repair and modernization. The company has raised its sales outlook for modernization to low teens growth, while maintenance and repair are projected to improve slightly within the mid-single digits range to compensate for the first quarter's performance. Julian Mitchell from Barclays had inquired about the revenue and margin expectations, and this answer was part of their response.

The paragraph discusses the company's backlog and margin expectations across different business segments. Cristina Mendez highlights that new equipment sales will decline in the first half of the year due to a reduced backlog, but orders in the Americas are improving and will benefit sales in the second half. Margins in this segment are strong but face challenges with lower-priced backlog from China and rising tariffs, which have led to a full-year margin guide adjustment. In the service segment, sales are expected to accelerate starting in Q2, with growth in both repair and modernization by the year's second half. Margins in service will gradually improve despite tough comparisons with the previous year's performance. Overall, operating profit margins are expected to be flat in the first half and grow slightly in the second half.

The paragraph discusses the impact of a $60 million net tariff, which includes some mitigation efforts. Judy Marks emphasizes that this is an initial estimate and that further efforts can reduce the impact over time. Chris Snyder from Morgan Stanley asks about the quarterly progression of this impact and its future implications, particularly looking towards 2026. Judy Marks explains that in 2018, similar tariffs resulted in over $10 million that couldn't be mitigated initially, but the impact was managed over time. They are still dealing with tariffs from 2018, which have been absorbed in pricing and no longer affect the bottom line. A similar approach is expected for the current situation, although they will still need to address the backlog into 2026, assuming no further changes occur.

The paragraph discusses the company's growth and optimism in the European and Middle Eastern markets, despite current challenges. Chris Snyder acknowledges the increased optimism in the European and Chinese economies compared to the previous year, but notes pressure on new equipment orders. Judy Marks responds by emphasizing the company's strategic focus in Europe and the Middle East, acknowledging the EMEA team's efforts and success in growing the market segment and improving sales. She highlights the positive performance despite a one-time 4% decrease and the strong demand for their Gen 360 product, particularly in Europe and the Middle East. Marks remains optimistic about future growth in these regions.

The paragraph discusses Otis Worldwide Corporation's strategic shift in China, focusing on becoming a more service-driven business due to the competitive environment. The company's China revenue has decreased from 13% to 10% of total revenue, with 40% of China revenue now coming from services like maintenance and repair, up from 30%. This shift aims to reduce dependency on new equipment, with new equipment sales in China dropping from 24% to 17%. The strategy, led by Sally and the team, is yielding results with fourteen consecutive quarters of service growth in China, expected to improve margins over time. This transformation aligns with treating China as a mature market.

The paragraph discusses various one-off costs impacting the operating profit of a company, aside from previously communicated restructuring programs. Cristina Mendez confirms an additional $80 million in costs on top of $18 million already calculated for the current period, part of an annual $250 million restructuring and transformation guide. Of the $80 million, $52 million is related to a tax case in Germany tied to an indemnification issue with RTX. The company has updated the GAAP operating profit to reflect this. Also mentioned are $21 million in legal and settlement costs from resolved cases and $10 million for asset impairment. The company anticipates further developments in the second half of the year concerning the tax case with German authorities.

In Paragraph 27, the company mentions booking a provision in Q3 related to classifying the assets and liabilities of a non-US subsidiary as "Head For Shell." They are in the process of completing the transaction and expect it to close in the coming months. Nick Housden acknowledges this, and the operator concludes the Q&A session. Judy Marks then emphasizes the company's ability to deliver earnings growth in 2025 despite economic uncertainties, expressing confidence in their long-term strategy to provide attractive returns for shareholders. The conference call is then concluded.

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