Judy Marks
Chair, Chief Executive Officer & President at Otis Worldwide
Thank you, Mike, and thank you, everyone, for joining us. We hope everyone listening is safe and well.
Starting with first quarter highlights on Slide 3. Otis delivered a solid first quarter to start 2023, driving strong financial performance and executing on our capital allocation strategy despite continued market uncertainty. We achieved organic sales growth, driven by our service business, and expanded adjusted service operating profit margins by 40 basis points, leading to mid-single-digit adjusted EPS growth. Our Service segment performance, in addition to our maintenance portfolio growth of more than 4%, reinforces the strength of our business model. We continue to execute our balanced capital allocation strategy with $175 million of share repurchases in the first quarter.
Yesterday, we announced a 17.2% increase to our quarterly dividend. Since spin, we have increased our dividend 70%, emphasizing the importance we place on disciplined capital management and delivering value to our shareholders. In the Americas, building on our strong track record of major project execution and service across Canada, Otis was selected by the Montreal Metro System to replace escalators at 17 stations, while providing units for 5 new blue line stations. In total, 97 Otis escalators will keep metro passengers on the move daily. In China, FA Metro placed a new order of 250 Otis ONE connected escalators and elevators across 3 new lines. Real-time data insights, remote monitoring and predictive maintenance will all help bring the FA Metro into the future and add to our growing infrastructure installed base.
In Germany, Otis has been selected by Cigna Group to modernize the iconic Dusseldorf Department Store Carsch Haus as part of a larger renovation. Otis will provide 17 units, including our energy-efficient link escalators and Gen2 stream elevators with regen drives. The elevators will also feature e-view in car displays. After the modernization is completed in 2024, Otis will service the units as part of our long-standing framework contract with KaDeWe Group, which operates Carsch Haus and other leading department stores in Germany.
In South Korea, we're providing 51 of our signature Gen2 elevators for the Sunshine [Indecipherable] luxury apartment complex. The campus includes more than 2,000 units and buildings up to 29 stories. And we continue to drive progress toward our ESG goals as shared in our 2022 ESG report published earlier in April. Just this month, we announced the installation of solar panels at our Nippon Otis Logistics and Engineering Center in Japan. This upgrade is expected to reduce greenhouse gas emissions at the facility by 27% compared to 2022, and represents our eighth manufacturing site globally with solar panel arrays.
Moving to Slide 4, Q1 results and 2023 outlook. New equipment orders were up 7.4%, driven by strong growth in the Americas and Asia Pacific, and we ended the quarter with adjusted backlog up 10% at constant currency. We continue to drive share gains in new equipment with 70 basis points of improvement in the quarter, led by our outperformance in China, where our orders were down modestly in a market where we estimate was down approximately 10%. We continue to perform well across all other regions. We're especially encouraged by our modernization performance in the quarter with nearly 30% orders growth driven by strong performance in the Americas and Asia. This growth is driven by our continued rollout of standardized packages for our mod offerings, coupled with improvements in our sales force coverage. Our mod backlog is up double digits in all regions, as mod demand continues to remain robust. Organic sales were up 3.6%, and adjusted operating profit was up $7 million at constant currency, driven by performance in the Service segment.
Before I discuss our 2023 financial outlook, let me briefly update you on our global market outlook, which largely remains unchanged. Entering the year, we expected global new equipment to be down mid-single digits to approximately 900,000 units, largely due to China, which we expected to be down 5% to 10%, and our outlook in that key region remains the same. We also expected Asia Pac to be up mid-single digits or better, and both the Americas and EMEA to be flat. With the first quarter in the books, we now expect Asia Pac to come in closer to high single digits, offsetting a reduction in our EMEA outlook, which we now expect to be down low to mid-single digits. Our outlook for global installed base growth remains unchanged at roughly 5%, which will add close to 1 million maintenance units, bringing the installed base to roughly 21 million units with high-single-digit growth in Asia and low-single-digit growth in the Americas and EMEA.
Turning to Otis' 2023 financial outlook. We now expect net sales to be in the range of $13.9 billion to $14.2 billion, up 2.5% to 4.5% versus the prior year, which is a 75-basis-point improvement from the prior outlook at the midpoint, driven by FX. We still expect organic sales to be up 4% to 6%, with new equipment up 3% to 5% and Service up 5% to 7%. Adjusted operating profit is expected to be up $90 million to $150 million at actual currency and up $130 million to $175 million at constant currency, with adjusted EPS in the range of $3.40 to $3.50, a 7% to 10% increase versus the prior year and an approximately $0.03 improvement from the prior outlook at the midpoint. We expect free cash flow to come in as we guided in February, in a range of $1.5 billion to $1.55 billion with 105% to 115% conversion of GAAP net income. We remain disciplined in our capital allocation strategy, and we'll continue to return the vast majority of our cash generation to shareholders through dividends and share repurchases. We will also continue advancing our bolt-on M&A strategy to add density to our growing maintenance portfolio.
With that, I'll turn it over to Anurag to walk through our Q1 results and full year outlook in more detail.
