Executive Vice President and Chief Financial Officer at Otis Worldwide
Thank you, Judy, and good morning everyone.
Starting with third quarter results on Slide 5. Net sales grew 10.8% to $3.6 billion as the strong growth momentum continued in New Equipment, and Service grew for the third consecutive quarter. Adjusted operating profit was up 12.5% or $63 million and up $52 million at constant currency, primarily from the benefit of higher volume in both segments. Installation productivity initiatives in New Equipment and favorable Service pricing and productivity helped to offset the headwinds from commodity inflation and the absence of temporary cost actions taken last year to alleviate the impact from COVID-19.
We maintained the focus on cost containment, while continuing to invest in the business. Adjusted SG&A was down 70 basis points as a percentage of sales, despite the step up in public company expenses. R&D and other strategic investments were up slightly versus prior year and were about flat as a percentage of sales. This strong focus on execution resulted in 20 basis points of margin expansion in the quarter and 70 basis points of margin expansion at constant segment mix. Third quarter adjusted EPS was up 11.6% or $0.08, driven by $0.11 of operating profit growth, partially offset by $0.04 from a higher adjusted tax rate due to the absence of a cumulative year-to-date tax benefit in the third quarter of 2020. On a year-to-date basis, the adjusted tax rate is down by 180 basis points.
Moving to Slide 6. New Equipment orders were up 3.8% at constant currency. Orders momentum remained strong in Asia, up mid-teens, including sixth consecutive quarter of growth in China. As expected, after 47% growth in the second quarter, orders declined year-over-year in the Americas, primarily due to timing as awards which precede order booking in North America were up approximately 24% versus the prior year. EMEA was down 1.8% from the timing of major project orders. Proposal volumes in the quarter also continued to show signs of strong demand globally, up double-digits. Total company backlog increased 4% and 1% at constant currency from strong growth in China. Pricing on new orders declined by over 1 point and backlog margin was down about 1 point versus prior year. Both, pricing on new orders and backlog margin, were about flat sequentially.
Year-to-date, New Equipment orders were up 15%, including 13% growth in the Americas, mid-single-digit growth in EMEA, and approximately 20% growth in Asia. Organic sales were up 14.1% with growth in all regions. Americas was up mid-teens, driven by strong backlog execution as the business surpassed pre-COVID levels. EMEA was up low-single-digits and Asia grew high-teens, driven by China, where organic sales were up double-digits. New Equipment adjusted operating profit was up $33 million from higher volume. Pricing was marginally unfavorable in the quarter and higher commodity prices were a headwind of $35 million, but we more than mitigated these impacts through strong installation execution, including favorable project closeouts, leading to 80 basis points of adjusted operating profit margin expansion.
Service segment results on Slide 7. Maintenance portfolio units were up 3% versus the prior year with global improvements in retention, recapture and conversion rates. The number of units increased in all regions, and China was up high-teens, accelerating from the mid-teens growth in the second quarter. There was pressure on modernization demand in the third quarter and modernization orders were down 4.1% at constant currency as growth in EMEA and Asia was offset by decline in the Americas, primarily driven by timing of orders as the market is recovering strongly in 2021. Overall, modernization backlog was up 2% at constant currency.
Service organic sales were up 3.6% with growth for the third consecutive quarter, as the business continues to recover from the impact of COVID. Maintenance & Repair grew 4.7% with strong recovery in repair and low single-digit growth in contractual maintenance sales. Modernization sales were down 1.2% as growth in Europe and China was more than offset by declines in Asia Pacific from lingering COVID-related lockdowns, and in the Americas from supply chain shortages. Adjusted operating profit grew $27 million as higher volume productivity initiatives and improved pricing and mix more than offset the absence of favorability from COVID-related cost containment actions taken in the prior year. Adjusted operating profit margin expanded for the seventh consecutive quarter and was up 30 basis points.
Overall, year-to-date results reflect solid performance with approximately 1.5 points of New Equipment share gain; our best portfolio growth in the last decade, 11% organic sales growth and $261 million of adjusted operating profit growth with margin expansion in both segments.
We also generated close to $1.4 billion in free cash flow, enabling us to complete $725 million in share repurchases, raise dividends earlier this year, continue with bolt-on acquisitions, and announce the tender offer for the remaining stake in Zardoya Otis.
Looking forward to the balance of the year on Slide 8. We feel confident about strong growth across all key metrics for the year. We now expect organic sales to be up 8.5% to 9%, up 1 point from the prior outlook with improvement in New Equipment segment. We now expect operating profit to grow between $260 million to $270 million, up $15 million from prior outlook at the midpoint with sales growth, operating profit growth and margin expansion in both segments. Adjusted EPS is now expected to be approximately $2.95; $0.04 higher than prior outlook at the midpoint, and up 17% versus the prior year. The year-over-year EPS increase is driven by strong operating profit growth, a reduction in the adjusted tax rate, and a reduced share count.
The adjusted tax rate is now expected to be in a range of 28.5% to 29%; more than 150 basis point reduction versus the prior year and a 25 basis point improvement from the prior outlook at the midpoint. Following strong year-to-date cash generation from net income growth and over $300 million reduction in working capital from the end of last year, we now expect free cash flow for the year to be between $1.5 billion to $1.55 billion. This is up $50 million from the prior outlook from improved net income and reduced working capital.
Taking a further look at the organic sales outlook on Slide 9. New Equipment is now projected to be up 15% to 15.5%, driven by accelerated backlog conversion and a 15% year-to-date orders growth. This is an increase of more than 250 basis points from the prior outlook and over 11 point improvement from our expectations at the beginning of the year. This broad-based improvement in expectations is supported by robust market growth in all regions, strong year-to-date performance and continued backlog growth. Americas is now up high-teens -- sorry up mid-teens; EMEA up high-single-digits; and Asia up high-teens, driven by China.
In Service, we are adjusting our outlook to approximately 4% growth, the lower end of the prior range, reflecting slower than expected recovery on modernization in the second half of the year. Modernization is now expected to be up approximately 4% for the year from up mid-single-digit previously driven by COVID-related job site restrictions in Asia Pacific, slower decision making in EMEA and some parts shortages in the Americas. Despite the resurgence of COVID in Asia Pacific, there is no change to the Maintenance & Repair outlook, that is still expected to be up approximately 4% for the year, driven by continued maintenance portfolio growth and recovery in discretionary repair.
Overall, the organic sales growth outlook of 8.5% to 9% reflects a strong year-to-date performance and good momentum positioning us well to deliver growth across all regions and all lines of business, while building backlog to support continued growth in 2022.
Switching to operating profit on Slide 10. We now expect operating profit to be up between $260 million to $270 million versus the prior year with margin expansion of 30 basis points. At constant currency, operating profit is expected to be up between $195 million to $205 million. This represents an improvement of $15 million versus the prior outlook from the impact of updated volume expectations in both segments and actions taken to reduce the corporate expenses. FX tailwind is now expected to be approximately $65 million from $70 million that we were expecting previously, primarily due to the recent strengthening of the U.S. dollar against the euro impacting the profit growth in the Service business.
The year-over-year growth in operating profit reflects the benefits of higher volume, Service productivity initiatives, favorable Service pricing and strong installation execution. It is partially offset by unfavorable New Equipment price mix, headwinds from the absence of prior-year cost containment actions related to COVID-19 and higher commodity prices. The headwind from commodities is now expected to be between $80 million to $90 million for the year; at the higher end of what we communicated in July, driven partially by higher New Equipment volume in the year. The broader price increases announced last quarter have been rolled out and will help to alleviate the impact from higher commodity prices in 2022.
Overall, this strong outlook puts us more than $1 billion ahead of our 2019 reported revenue with 100 basis points of margin expansion. 2021 sales, earnings and margin in both segments are expected to be higher than 2019 and adjusted EPS is expected to be up more than 30% versus 2019, reflecting broad-based improvement in performance, driven by our ability to execute implementation of the long-term strategy and the benefits of a solid end market recovery.
And with that, I'll request Michelle to please open the line for questions.