Otis Worldwide Corporation

Otis reported Q2 net sales of $3.9 billion, with organic sales up 6%. Adjusted operating profit, excluding a $7 million foreign exchange tailwind, declined by $32 million, and adjusted operating margin fell 180 basis points to 15.2%. Adjusted EPS declined 4%, or $0.04, in the quarter. Adjusted free cash flow was $290 million, up 19% year over year. By segment, service organic sales grew 9% and service operating margin was 23.2%, down 170 basis points; new equipment organic sales declined 1% and new equipment operating margin was 3.1%, down 220 basis points. For the full year 2026, Otis now expects net sales of $15.1 billion-$15.3 billion with organic sales growth of low to mid-single digits. Adjusted operating profit is guided to down $30 million to flat on an actual currency basis, or down $45 million to $15 million at constant currency. Adjusted free cash flow is expected to be $1.5 billion-$1.55 billion, and adjusted EPS is now expected to be $4.01-$4.05. Management said Q3 service organic sales should remain strong at mid-single-digit growth, new equipment organic sales should continue to improve sequentially, and total adjusted operating profit should be flattish versus the prior year, with fourth-quarter profit growth expected as service and new equipment momentum builds.

Judy Marks framed the quarter as evidence that Otis is executing through a multi-year service transformation: strong modernization and repair growth, improving new equipment trends, and continued cash generation. She emphasized investments in service quality, frontline processes, and the new service operating model as necessary to support retention and long-term growth, even if they pressure margins in the near term. Her tone was confident on the long-term setup, but candid that the company is still working through temporary productivity and cost headwinds and slower-than-expected retention improvement.

Cristina Mendez focused on the mechanics of the guidance change and margin bridge. She said Otis had invested $15 million of a planned $50 million service excellence program in the quarter, and that the company now expects an additional $50 million incremental headwind versus prior full-year outlook from productivity and cost, with $30 million of that tied to ramp-up and higher labor rates and $20 million tied to inflationary material costs. She also said service margins should improve sequentially, moving from around 23.1% in the first half to roughly mid-24% in the second half, helped by repair pricing, modernization and repair volume, and SG&A benefits from restructuring.

Analysts focused on why micro-pricing is being tempered, what is causing the productivity headwinds, and whether retention is truly improving. Management said maintenance micro-pricing is being balanced against retention, especially where service quality concerns still matter, while repair pricing is working well; they stressed the issue is selective rather than a broad pullback. On productivity, they pointed to the cost of investing in service quality, longer onboarding for skilled mechanics, and higher labor rates needed to execute the modernization and repair backlog. They also addressed retention, saying the declines were small, concentrated mainly in the Americas, and not driven by pricing elasticity or share loss to independent service providers.