Otis Worldwide NYSE: OTIS reported a “solid start to the year” in the first quarter of 2026, highlighting order growth, service-led organic sales expansion, and higher cash generation, while also detailing near-term margin pressure in its service business driven by investments, mix, and inflation-related timing impacts.
First-quarter results: service growth offset by margin pressure
Chair, CEO, and President Judy Marks said total organic sales increased 1% in the quarter, driven by 5% organic growth in service. Otis reported net sales of $3.6 billion.
Marks said maintenance and repair sales increased 4%, supported by an acceleration in organic repair sales, which rose about 10%. Modernization demand also remained strong, with modernization orders up 11% and the modernization backlog up about 30% at constant currency.
However, profitability weakened in the quarter. Marks said adjusted operating profit margin declined 130 basis points to 15.4%. Adjusted EPS declined 3%, or $0.03, which Marks attributed to operational performance, partially offset by favorable foreign exchange rates. Marks also noted adjusted operating profit, excluding a $28 million foreign exchange tailwind, decreased by $38 million.
In service, Executive Vice President and CFO Cristina Méndez said service organic sales rose 5% with growth across maintenance, repair, and modernization. Maintenance and repair organic sales increased 4%, with organic maintenance sales up 2% on 3% portfolio growth and roughly 3% positive pricing, partially offset by mix and churn. Repair organic sales increased 10%, which Méndez said was in line with expectations and reflected “healthy customer demand across all regions.” Modernization organic sales grew 6%, though Méndez said project delays in EMEA during the quarter were tied to the conflict in the Middle East.
Service operating profit was $556 million, down $10 million at constant currency, and service operating margin contracted 160 basis points to 23%. Méndez cited continued investments to support long-term growth, higher labor and material costs, and unfavorable mix, “particularly in our maintenance business.” She also said faster growth in lower-value maintenance units has created negative portfolio mix.
New equipment trends: mixed market conditions and China headwinds
New equipment results continued to be pressured by regional mix, particularly in China. Méndez said new equipment organic sales declined 5% in the quarter, with growth in EMEA more than offset by declines in Asia, “particularly China,” and slightly lower volumes in the Americas.
By region, she said:
- EMEA sales increased about 1%, led by Southern Europe, partially offset by weaker performance in Western and Central Europe.
- Asia sales declined 13%, reflecting China backlog pressure, with China sales down more than 20%.
- Americas sales declined about 1%, which Méndez described as a sequential improvement as prior order growth begins to flow through to revenue.
New equipment operating profit was $38 million, down $27 million at constant currency, and operating margin declined 240 basis points to 3.3%. Méndez said the decline was primarily driven by lower volumes and unfavorable price and mix, partially offset by productivity.
On orders, Marks said new equipment orders increased 1% at constant currency and were up 5% excluding China, while backlog increased 3% year-over-year at constant currency and was up 11% excluding China. She said demand outside China remained positive, especially in the Americas, where orders grew more than 20% for the seventh straight quarter of orders growth.
Service margin actions: investments, pricing, surcharges, and cost reduction
Marks said Otis experienced “short-term profit pressure” in service during the first quarter due to three factors: investments for growth, portfolio mix, and inflationary effects with revenue delays and timing of cost recovery, “partly related to the Middle East conflict.”
Marks detailed spending initiatives in the quarter, including $5 million of additional field costs in the baseline for service quality and roughly $10 million invested in sales capabilities in high-value markets, including tools, an AI pricing algorithm, sales representatives, and training. For the full year, Marks said Otis expects $50 million of incremental investments in 2026, including what was executed in the first quarter.
She also said Otis is implementing fuel and logistics surcharges to address cost headwinds and is executing a targeted cost reduction program in non-frontline activities. Marks said the program is expected to generate up to $20 million of run-rate savings in indirect expenses, with about $10 million expected to be achieved in 2026.
During the Q&A, Méndez provided additional color on service margin progression. She said margins should sequentially improve through 2026, with Q2 still expected to be negative year-over-year but “around 24%,” stabilizing in Q3, and returning to year-over-year expansion in Q4. She said full-year service margins should land in the “high 24s,” “a touch below 2025.”
Méndez also quantified drivers behind the first-quarter service margin decline, saying the 160 basis point contraction versus an initial expectation of about 30 basis points reflected roughly 50 basis points from mix headwinds, another 50 basis points from incremental investments placed in Q1, and about 30 basis points from other factors including Middle East-related headwinds and cost inflation.
Marks emphasized retention as a key metric, saying retention rates excluding China stabilized and that first-quarter retention was about 50 basis points higher year-over-year. She reiterated the company’s focus on shifting toward higher-value units and markets, pointing to Europe as an area where portfolio gain did not meet expectations.
Orders, backlog, cash flow, and capital deployment
Marks said combined new equipment and modernization orders increased 4% in the quarter, while combined backlog for those businesses increased 9% year-over-year. Total backlog remained at historically high levels, “approaching $20 billion,” which she said supports earnings visibility.
Otis also delivered higher cash generation, with Marks reporting adjusted free cash flow of approximately $272 million, up 46% versus the prior year. She attributed the improvement to a ramp-up in orders, improved working capital management, and a continued focus on cash conversion.
On capital returns, Marks said the company announced a 5% increase to its quarterly dividend and noted that since the spin-off the dividend has increased by approximately 120%. Otis also repurchased about $400 million of shares in the quarter, and management reiterated a full-year target of $800 million in repurchases, “front-loaded in the first half of the year.”
WeMaintain investment and product initiatives
Marks discussed a recently announced majority investment in WeMaintain, describing it as a “digital and AI-enabled elevator service provider.” She said Otis expects the transaction to contribute incremental growth and that WeMaintain provides a connected, multi-brand complement to the company’s Otis ONE platform. Marks said Otis plans to operate WeMaintain independently while aligning on technology capabilities.
Otis also highlighted two innovation offerings: Otis Robust, a heavy-duty elevator range designed for data centers and mission-critical environments, and Otis Viva Solutions, aimed at supporting safer and more accessible mobility for aging populations across modernization and new installations.
For 2026, management reiterated expectations for stabilization in the global new equipment market, with Marks noting the company still expects industry units to be down 2% for the year, with growth across all regions except China. Marks also reiterated a robust modernization market outlook, describing it as a “multi-year growth cycle” driven by an aging installed base.
Otis updated full-year guidance, projecting net sales of $15.1 billion to $15.3 billion with low- to mid-single-digit organic sales growth and adjusted operating profit of approximately $2.5 billion. Adjusted EPS is now expected to be $4.20 to $4.24, which management said remains within the original guidance range but is narrowed, reflecting a softer-than-anticipated first half due to operational headwinds and service investments.
Méndez said adjusted free cash flow is expected to be $1.6 billion to $1.65 billion. She added that guidance assumes the Middle East conflict ends in the second quarter; if it continues, the company expects a negative profit impact of $5 million to $10 million per quarter due to delays, logistical interruptions, and increased cost.
Looking to the second quarter, Méndez said total organic sales are expected to accelerate, driven mainly by repair and modernization, while new equipment organic sales declines should moderate sequentially. She said adjusted EPS in the second quarter is expected to decline 3% to 5% year-over-year, with management expecting performance to improve in the second half as pricing, retention, execution, and cost actions take hold.
About Otis Worldwide NYSE: OTIS
Otis Worldwide Corporation is a manufacturer, installer and servicer of vertical transportation systems, including elevators, escalators and moving walkways. The company designs and supplies new equipment for commercial, residential and industrial buildings, and provides ongoing maintenance and repair services aimed at maximizing equipment availability and safety. Otis also offers modernization solutions to upgrade aging systems and improve performance, accessibility and energy efficiency.
In addition to new equipment sales, a significant portion of Otis's business derives from long-term service contracts and responsive maintenance work.
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