Otis Worldwide Corporation (OTIS) Earnings & Analysis

Latest quarter

Otis reported Q3 FY2026 revenue of $3.9 billion, above the $3.8 billion consensus and up from $3.7 billion a year earlier. Adjusted earnings per share of $1.05 also exceeded the $1.00 consensus. Diluted EPS was $1.12, compared with $0.95 a year earlier.

Otis said organic sales grew 6%, with service up 7% and new equipment up 3%. The company’s filing attributed service growth to maintenance and repair, as well as modernization. In new equipment, it said growth across the Americas, Asia Pacific and EMEA was partly offset by a greater than 20% decline in China.

Gross margin fell to 29.5% from 30.7%. The filing attributed the decline to higher costs, including labor and materials, partly offset by service sales growing faster than new equipment sales. Operating margin was 15.8%, compared with 15.9% a year earlier. Otis reported free cash flow of $299.0 million, down from $338.0 million.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Judy Marks said demand for modernization remained healthy, with quarterly orders up 10% and backlog up 20% at constant currency. She said Otis was using standard packages and specialized sales efforts to capture demand for upgrades, while executing work already in its backlog. CFO Cristina Mendez said faster execution had slowed backlog growth even as orders continued to rise.

Marks said new equipment orders increased 1% overall and 5% excluding China. She said Americas sales benefited from backlog conversion, while China’s new equipment sales fell more than 20%. Asked about regional demand, Marks said North American orders had grown for nine consecutive quarters and identified hospitality, data centers, hospitals and industrial facilities as areas of demand. She also said new Chinese development rules favored completing units and required presale down payments to be held in escrow rather than used to finance the next project.

Mendez said service margin was 24.2%, down 130 basis points from a year earlier but up 100 basis points sequentially. She attributed the sequential improvement to repair pricing, higher modernization and repair volumes, and lower selling, general and administrative expenses, including one-time benefits. Asked about the quarter ahead, she said higher modernization sales had created a service-margin mix headwind, while churn had also been a headwind.

Marks said Otis’s investments in field staff and service quality were intended to support growth and retention. She said micro-pricing had been most successful in repair, while maintenance pricing takes longer to flow through because contracts outside China generally last more than one year.

Asked about acquisitions, Marks said Otis was looking for service assets it could integrate but wanted to avoid distractions and transactions requiring it to justify market concentrations in parts of Europe. Asked about modernization margins, she declined to give an exact quarterly figure but reiterated a 10% medium-term goal.

Guidance

Otis now expects FY2026 adjusted free cash flow of around $1.5 billion, compared with its previous range of $1.5 billion to $1.6 billion. For Q4, Mendez said she expects service operating margin to be broadly in line with Q3, assuming productivity and churn remain stable. The previous Q2 outlook had called for around 25.0% in Q4.