Otis Cuts Full-Year Profit Forecast on Rising Costs and Service Investments

Otis Worldwide Corp. on Wednesday reduced its full-year adjusted profit forecast, pointing to rising costs and increased investment in its service business, even as its second-quarter revenue surpassed analyst expectations. The elevator and escalator manufacturer's shares fell 2% following the announcement.

Revised Outlook

Otis now projects its annual adjusted profit to be between $4.01 and $4.05 per share, a notable reduction from its previous guidance of $4.20 to $4.24. The company attributed the downgrade to productivity and cost pressures, including an additional $50 million allocated for investments in its service segment.

According to CEO Judy Marks, the company "deliberately" lowered its forecast to invest in service quality and staffing. This move is intended to prepare for what Otis anticipates will be a "multi-year boom" in elevator repairs and modernization. Analysts at RBC noted that the strong service revenue growth was "overshadowed by a margin miss and a sizeable cut to the full-year forecast."

Quarterly Performance and Headwinds

For the second quarter, Otis reported an adjusted profit of $1.01 per share, which was in line with the average analyst estimate compiled by LSEG. Quarterly revenue grew 7% year-over-year to $3.86 billion, beating estimates of $3.76 billion.

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The company's growth was driven by its service business, while its new-equipment segment saw flat sales of $1.3 billion. Weakness in the new-equipment business was particularly pronounced in China, where sales declined in the high teens. Regarding geopolitical issues, Marks said Otis has "broadly offset" the impact of the Middle East conflict with higher pricing and does not expect a significant impact on its outlook.

Full-Year Segment Expectations

Looking ahead, Otis provided a mixed outlook for its two main business segments for the full year:

• New Equipment: Organic sales are expected to be flat or experience a low-single-digit percentage decline.
• Service: Organic sales are forecast to increase by a mid-to-high single-digit percentage.