Key facts
- Otis Worldwide lowered its annual adjusted profit forecast to $4.01-$4.05 per share from $4.20-$4.24.
- The company cited increased labor costs and investments in its service business as reasons for the reduced forecast.
- Higher pricing was implemented to offset the impact of the Middle East conflict.
- Sales in China's new equipment business declined significantly.
- Second-quarter revenue increased 7% to $3.86 billion, beating estimates.
Elevator maker Otis Worldwide on Wednesday revised down its annual adjusted profit forecast, citing increased costs, particularly related to labor, and strategic investments in its service business. The company indicated that higher pricing had largely compensated for the impact of the Middle East conflict, but a slowdown in new equipment sales, notably in China, also contributed to the revised outlook.
Otis now anticipates annual adjusted earnings per share to be between $4.01 and $4.05, a reduction from its previous projection of $4.20 to $4.24. This adjustment reflects an additional $50 million in anticipated costs due to productivity pressures and ramp-up investments in the service segment, which is experiencing strong demand for repairs and modernization.
Despite the lowered profit forecast, Otis reported that its second-quarter adjusted profit met analysts' expectations at $1.01 per share. Quarterly revenue grew 7% to $3.86 billion, surpassing estimates of $3.76 billion. However, new equipment sales remained flat at $1.3 billion, with a significant decline in the high teens reported for China.
CEO Judy Marks stated that the company deliberately lowered its forecast to invest in service quality, staffing, and execution, anticipating a multi-year boom in elevator repairs and modernization. RBC analysts noted that the strong service revenue growth was overshadowed by a margin miss and the substantial cut to the full-year forecast, leading to a 2% drop in Otis's share price.