Overview of Otis Worldwide Corporation’s Financial Performance

Otis Worldwide Corporation (Otis) is the world’s leading elevator and escalator manufacturing, installation and service company. The company operates in two main segments - New Equipment and Service. The New Equipment segment designs, manufactures, sells and installs elevators, escalators and moving walkways. The Service segment performs maintenance, repair and modernization services for both Otis’ own products and those of other manufacturers.

In 2024, Otis reported net sales of $14.3 billion, a 0.4% increase from 2023. This growth was driven by a 5.9% increase in Service segment sales, partially offset by a 7.7% decline in New Equipment segment sales. Gross margin improved to 29.9% in 2024 compared to 29.5% in 2023, aided by productivity gains and lower commodity prices, though offset by inflationary pressures.

Operating profit declined 8.1% to $2.0 billion in 2024, impacted by higher corporate expenses, restructuring costs and other one-time items. Net income attributable to Otis increased 17.0% to $1.6 billion, driven by a lower effective tax rate and lower interest expense, partially offsetting the decline in operating profit.

Revenue and Profit Trends

Otis’ revenue growth in 2024 was modest at 0.4%, with the Service segment driving the increase while New Equipment sales declined. The Service segment saw organic sales growth of 6.8%, with increases in both maintenance/repair (5.7%) and modernization (11.7%) services. This was offset by a 6.4% organic decline in New Equipment sales, primarily due to a greater than 20% drop in China.

The company’s gross margin improved to 29.9% in 2024 from 29.5% in 2023, as productivity gains and lower commodity prices more than offset inflationary pressures on wages and materials. However, operating profit declined 8.1% to $2.0 billion, impacted by higher corporate expenses, restructuring costs and other one-time items.

Otis’ net income attributable to the company increased 17.0% to $1.6 billion in 2024. This was driven by a lower effective tax rate of 15.0% compared to 26.2% in 2023, as well as lower interest expense. The lower tax rate was primarily due to the resolution of German tax litigation, which resulted in $185 million of tax benefits.

Strengths and Weaknesses

Strengths:

• Leading market position in elevators and escalators globally
• Diversified business model with both New Equipment and high-margin Service segments
• Strong brand recognition and customer relationships
• Ongoing productivity initiatives and cost savings program (UpLift) to improve profitability
• Solid financial position with access to capital markets

Weaknesses:

• Exposure to macroeconomic conditions impacting construction and real estate markets
• Reliance on China market, which saw a significant decline in New Equipment sales in 2024
• Susceptibility to commodity price inflation and supply chain disruptions
• High fixed costs and capital-intensive nature of the business
• Potential legal and regulatory risks, as evidenced by the German tax litigation

Outlook and Future Prospects

Looking ahead, Otis faces both opportunities and challenges. The company’s UpLift program is expected to generate $200 million in annual run-rate savings by the second half of 2025, which should help offset inflationary pressures. However, the global macroeconomic environment remains uncertain, with potential impacts on customer demand, liquidity and supply chains.

In the New Equipment segment, Otis will need to navigate the slowdown in China, its largest market, while seeking growth opportunities in other regions. The Service segment’s high-margin maintenance and modernization businesses provide more stable revenue streams, and the company will continue to focus on converting new equipment installations into service contracts.

Overall, Otis’ leading market position, diversified business model and ongoing cost savings initiatives position the company well to navigate the current challenges. However, the company’s performance will be closely tied to broader economic conditions and its ability to effectively manage supply chain, inflation and legal/regulatory risks.