Rahul Ghai
Executive Vice President & Chief Financial Officer at Otis Worldwide
Thank you, Judy and good morning everyone. Starting with first quarter results on Slide 5. Net sales were up 0.2% to $3.4 billion. Organic sales grew for the sixth consecutive quarter up 3.1% driven by service sales, which increased nearly 6%. Adjusted operating profit was up $9 million and up $29 million at constant currency as the drop-through on higher service volume, favorable service pricing, productivity in both segments and lower bad debt expense was partially offset by commodity headwinds and annual labor cost increases. We also maintained our unrelenting focus on cost containment and adjusted SG&A expense was down $17 million versus the prior year and down 60 basis points as a percentage of sales, despite the inflationary trends in the economy. R&D trend and other strategic investments were flat versus the prior year. Given the strong cash flow and progress on repatriation, we completed our deleveraging and repurchased $200 million of shares in the quarter. Overall, growth in operating profit, reduction in share count and continued progress on reducing the tax rate resulted in first quarter adjusted EPS growth of 6.9%.
Moving to Slide 6. New Equipment orders were up 8.8% at constant currency, with growth in all regions. Orders momentum remained strong in Asia, up mid single digits with about 10% growth in Asia ex-China. China orders were up 3%, the eighth consecutive quarter of orders growth in the country and outgrew the market that was down mid-single digits. Orders in America were up high single-digit and awards which proceed order booking were up nearly 25% in North America, signaling continued strong demand. EMEA orders were up 17% with growth in both Europe and the Middle East. Strong orders growth contributed to total company backlog increasing 4% and 6% at constant currency, with growth in all regions, including approximately 6% growth in Asia. In addition, global proposal volume was up low teens with more than 25% growth in China, demonstrating robust market activity and the benefits of increased sales coverage. Globally, pricing on New Equipment orders was about flat in the quarter on a year-over-year basis.
New Equipment organic sales were down 0.5% in the quarter. EMEA was up mid single digits, but this was offset by low single-digit decline in both Americas and Asia. Americas declined due to a tough compare from COVID recovery in the prior year. And in Asia, China was impacted by job site closures towards the end of the quarter. Adjusted operating profit was down $12 million, partially from the impact of lower volume. Commodity inflation of $38 million that was in line with prior expectations was largely mitigated by installation and material productivity and lower bad debt expense.
Service segment results on Slide 7. Maintenance portfolio units were up more than 3% from broad-based improvements in retention, recapture and conversion rates with recaptured units more than offsetting cancellations in the quarter. In China, conversion rates continued to improve and contributed to third consecutive quarter of high teens portfolio growth. Modernization orders were down about 6% in the quarter, but are up close to 6% on a rolling 12 month basis, driving backlog growth of 3% versus the prior year. Service organic sales grew for the fifth consecutive quarter, up 5.8%, with growth in all lines of business. Maintenance and repair grew 5.6% with mid single-digit growth in contractual maintenance sales, above our unit growth due to improved pricing that was up approximately 2.5% adjusted for geographical mix, and the benefits of strong repair volumes.
Modernization sales were up 6.9% with strong growth in Americas, EMEA and China. Modernization sales declined in Asia Pacific on a tough compare after a strong demand in Southeast Asia in the prior year. Service adjusted operating profit was up $17 million with 30 basis points of margin expansion. The ninth consecutive quarter of margin improvement. Profit at constant FX was up $40 million driven by benefit of higher volume, favorable pricing and productivity and partially offset by annual labor cost increases.
As we look forward to the balance of the year on Slide 8, we are excluding Russia, both in the current outlook for '22 and in prior-year comparisons. Overall organic growth expectations of 3% to 4% are unchanged at the midpoint, with the improvement in service offset a lower New Equipment growth expectations. Total company margin expansion of approximately 30 basis points is also consistent with prior expectations. We are raising our outlook for service margin improvement to 70 basis points from 50 basis points previously from better maintenance pricing and drop through from higher volume. However, this is getting offset by reduced margin expectations in the New Equipment segment from increased headwinds on commodities, higher and higher freight costs and the impact from lower volume growth. Overall, adjusted EPS is expected to be in a range of $3.22 to $3.27, up 9% to 11% versus the prior-year after adjusting for Russia. This strong growth is driven by an increase in operating profit, accretion from the Zardoya transaction and progress on reducing our tax rate and share count.
Taking a further look at the organic sales outlook on Slide 9. The New Equipment business is projected to be flat to up 1.5%. This is a decrease from the prior outlook at the midpoint, driven by adjustment in sales growth expectations for EMEA and Asia. While the backlog in EMEA is up more than 5%, our customers are requesting postponement of deliveries due to a broader slowdown in building construction activity pushing shipments from 2022 to 2023. As a result, we now expect EMEA sales to be up low to mid single digits for '22.
In China, our backlog at the end of Q1 was up 4% from strong orders growth. The current lockdowns are not only impacting shipments, but are also disrupting the supply chain. While we expect deliveries to pickup starting May, given the supply chain challenges we are adjusting our 2022 China outlook to be down low-single digits from flat to down 3% previously as some sales move to the right. Given the lowered volume expectations in China, Asia is now expected to be down slightly for the year. Outlook on New Equipment organic sales in Americas remains unchanged, and is expected to be up low-single digits in 2022.
Turning to Service. We now expect organic sales to be up 5% to 6%, an improvement from the prior outlook of 4% to 6%, driven by better than expected maintenance pricing and repair orders in the first quarter and higher confidence to execute our modernization backlog from the steps we have taken to resolve the supply chain challenges.
Switching to adjusted EPS bridge on Slide 10. We now expect adjusted EPS growth of 9% to 11% with operating profit growth of $105 million to $155 million at constant currency. This increase of $0.17 to $0.26 versus prior year is driven by strong operational execution, higher volume and favorable pricing. This is partially offset by commodity headwinds, which we now expect to be $110 million for the year, $20 million higher than in the prior outlook and incremental freight costs. We are absorbing these higher commodity and freight cost through increases in productivity and better maintenance pricing and the mid-point of profit growth expectation at constant FX remains unchanged. Foreign exchange translation is now expected to be $0.11 headwind versus the prior year and $0.04 worse than the prior outlook, primarily from strengthening of the US dollar against the euro and the yen. The euro is now expected to be one-time for the year, implying a EUR1.09 for the balance of the year. The $0.11 FX headwind is more than offset by $0.12 of in-year accretion expected from the Zardoya transaction. This estimate is $0.02 better than the prior outlook from a faster pace of acquisition of shares. The balance of the EPS growth is driven by progress on reducing the adjusted tax rate, now expected to be approximately 27.7% for the year and a lower share count.
We have completed $200 million in share repurchases for the year and plan on completing an additional $300 million in the balance of the year at the high end of the prior outlook. This guidance clearly reflects the acceleration of both sales and profit trajectory of the service business from the benefits of investments and our sustained focus on driving productivity. And while the New Equipment business is challenged this year due to the current macroeconomic environment, our robust backlog, pricing actions and over $100 million of in-year productivity will ensure that the business recovers sharply once the commodity and the freight headwinds abate.
And with that, I'll request Latania to please open the line for questions.
