Otis Worldwide (NYSE:OTIS) executives told investors the company ended 2025 with “strong momentum” heading into 2026, led by continued service growth, record modernization orders, and improved cash generation. On the company’s fourth-quarter 2025 earnings call, Chair, CEO and President Judy Marks and CFO Cristina Mendez emphasized that management is discussing continuing operations and results excluding restructuring and significant non-recurring items.
Fourth-quarter performance driven by service and modernization
Otis reported fourth-quarter net sales of $3.8 billion, with organic sales up 1%. Marks said service organic sales rose 5% in the quarter, including 4% growth in maintenance and repair and 9% growth in modernization. New equipment organic sales declined 6%.
Otis also highlighted record quarterly adjusted free cash flow of $817 million, which Marks said reflected an ongoing focus on collections and working capital efficiency. For the full year, Otis reported approximately $1.6 billion of adjusted free cash flow and said it returned about $1.5 billion to shareholders through dividends and repurchases, while investing roughly $100 million in bolt-on acquisitions aimed at strengthening its service portfolio and expanding in key markets.
Record modernization orders and a larger backlog
Modernization was a central theme of the call. Marks said modernization orders rose 43% at constant currency in the fourth quarter and that modernization backlog was up 30% at constant currency, the highest since the company’s spin. Management characterized the environment as the early stages of a multi-year modernization cycle supported by an aging global installed base.
Mendez added that modernization organic sales grew 9% in the quarter, with China modernization sales “more than doubled.” She said the company’s strong fourth-quarter modernization orders included the large Transport for London program.
In Q&A, Marks said Otis is “industrializing” modernization through steps such as integrating modernization into factories, using a common supply chain, and deploying dedicated installers and specialized sales teams. She also said modernization margins are “getting much closer” to the company’s medium-term target and noted that modernization margins have already surpassed new equipment margins, with an expectation that modernization margins can exceed double new equipment margins as scale builds.
On conversion timing, Marks said some modernization work can convert faster than new equipment, particularly smaller or partial projects, but major projects and multi-elevator buildings can take longer due to the need to limit disruption by taking units out of service in phases.
Service margins and retention: investments continue
Otis reported service operating profit of $638 million in the quarter, up $49 million at constant currency. Service operating profit margin expanded 100 basis points to 25.5%. Mendez said drivers included higher volume, pricing, productivity, and gains on asset sales, offset by higher labor costs and mix and churn.
Management also broke out a notable item affecting service margins: Mendez said the quarter included $14 million related to the sale of certain service centers as the company outsources parts logistics to third parties to reduce lead times. She said that excluding this one-time effect, service margins would have expanded 40 basis points year over year, which she still characterized as “very solid.” Marks said the expected ongoing benefit is improved retention and faster spare parts delivery rather than a recurring profit contribution.
On retention and portfolio growth, Marks said Otis grew its maintenance portfolio 4% in 2025 to about 2.5 million units, the largest in the industry, and that recaptures and cancellations were roughly net neutral for the year, making conversions the primary driver. She said retention was stable outside China and described improving trends ex-China, while noting China’s structurally higher churn because contracts typically renew annually and are repriced each year.
Looking ahead, Marks said the company is intentionally focused on retaining “the right units” that drive profit contribution, suggesting portfolio unit growth may not necessarily match the 4% pace if the company emphasizes higher-value units over lower-contributing additions in emerging markets. She said the impact of that strategy should show up in maintenance and repair revenue trends over time.
Otis also discussed service excellence investments. Marks said those investments continue into 2026, including allocating more field resources in territories where service performance needs improvement, even if it creates near-term cost pressure. Mendez said repair demand is strong and that softer-than-expected repair growth in the quarter reflected resource allocation decisions as the company prioritized maintenance quality and customer satisfaction.
New equipment trends: stabilization outside China, margin pressure persists
In the fourth quarter, new equipment orders at constant currency declined 2%, while total backlog at constant currency grew 8% (14% excluding China). Mendez said new equipment backlog rose 2% year over year after seven consecutive quarters of decline, and excluding China it increased 9%.
New equipment operating profit was $47 million, down $15 million at constant currency, and new equipment operating profit margin declined 110 basis points to 3.6%. Management attributed the decline to lower volumes, unfavorable price, tariff headwinds, and mix, partially offset by productivity, including restructuring benefits.
In Q&A, Mendez said new equipment margins in 2026 are expected to be around the same rate as the fourth quarter of 2025, and she characterized the full-year 2026 new equipment margin outlook as “slightly below 4.” She also said the incremental year-over-year run rate from China transformation is smaller in 2026 than in 2025, and that executing the backlog at more competitive pricing would be a headwind.
2026 outlook: accelerating service growth, cautious EPS guidance
For 2026, Otis guided to total organic sales growth of low- to mid-single digits, driven by mid- to high-single-digit growth in service and new equipment sales that are expected to be down low single digits to flat. On an actual currency basis, the company expects total net sales of $15.0 billion to $15.3 billion.
Marks said service growth is expected to accelerate versus 2025’s 5% pace, with maintenance and repair benefiting from mid-single-digit portfolio growth, pricing, and field performance under the UpLift operating model. She also said Otis added about 1,000 field professionals in 2025 in anticipation of portfolio growth and repair demand. In Q&A, Marks said Otis expects repair growth to “ramp up to be 10%+” in 2026.
Mendez guided to constant-currency adjusted operating profit growth of $60 million to $100 million and adjusted free cash flow of $1.6 billion to $1.7 billion. She said Otis is targeting a 40% dividend payout ratio and approximately $800 million in share repurchases, while remaining flexible for potential bolt-on acquisitions.
On earnings, management guided to mid- to high-single-digit adjusted EPS growth for the full year. Responding to questions about the pace of growth, Marks said the company chose to start the year conservatively. Mendez added that, at the midpoint, EPS growth is about 6% and that the company expects a stronger operational contribution in 2026 than in 2025, while higher interest expense from refinancing maturities is expected to be a headwind, partly offset by buybacks and a modest tax benefit (with a full-year expected tax rate of 24.5%).
For the first quarter, Mendez said service organic sales growth is expected to be about 6% and EPS is expected to be “around flat” versus the first quarter of last year. She cited tariff-related comparisons and timing effects in new equipment, along with service investment comparisons, as factors in the quarterly outlook.
Management closed the call by reiterating confidence in the company’s service-driven strategy, pointing to the record modernization backlog and a growing new equipment backlog as support for 2026 performance.
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.
