Margins
Service margin to expand in Q4, return to growth
Reported gross margin was 30.34%, reinforcing the quarter's better-than-guided profitability.
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AI
Demand
Capex
OTIS
FY2026 Q1
SOFTENING
Otis Worldwide Corporation earnings call
Buzzberg read
Service margin to expand in Q4, return to growth
Otis reported a solid Q1 with 1% organic sales growth, strong modernization orders (up 11%) and a record backlog near $20B. Service margins contracted 160bps to 23% due to investment costs, negative portfolio mix, and Middle East disruptions. Management narrowed FY2026 EPS guidance to $4.20-$4.24 (lowered high end) and expects service margin expansion in H2. New equipment orders ex-China grew 5% and North America was robust (orders up >20%). Service organic sales grew 5% but operating margin fell 160bps to 23% from investments, mix, and inflation; management expects sequential improvement and Q4 year-over-year margin expansion.
Buzzberg read Service margin to expand in Q4, return to growth Otis reported a solid Q1 with 1% organic sales growth, strong modernization orders (up 11%) and a record backlog near $20B. Service margins contracted 160bps to 23% due to investment costs, negative portfolio mix, and Middle East disruptions. Management narrowed FY2026 EPS guidance to $4.20-$4.24 (lowered high end) and expects service margin expansion in H2. New equipment orders ex-China grew 5% and North America was robust (orders up >20%). Service organic sales grew 5% but operating margin fell 160bps to 23% from investments, mix, and inflation; management expects sequential improvement and Q4 year-over-year margin expansion. Read full analysisCollapse analysis
Otis reported a solid Q1 with 1% organic sales growth, strong modernization orders (up 11%) and a record backlog near $20B. Service margins contracted 160bps to 23% due to investment costs, negative portfolio mix, and Middle East disruptions. Management narrowed FY2026 EPS guidance to $4.20-$4.24 (lowered high end) and expects service margin expansion in H2. New equipment orders ex-China grew 5% and North America was robust (orders up >20%). Service organic sales grew 5% but operating margin fell 160bps to 23% from investments, mix, and inflation; management expects sequential improvement and Q4 year-over-year margin expansion.
- Modernization orders +11% (backlog +30%) and repair +10%; strong demand from aging install base.
- New equipment orders +1% overall, but +5% ex-China; Americas orders +>20% for 7th straight quarter.
- China new equipment orders down low teens; service revenue in China exceeded new equipment for first time since spin.
Revenue
$3.566B
-6% QoQ
EPS
$0.89
-14% QoQ
Gross margin
30.34%
reported
Op margin
15.11%
reported
What changed this quarter
Demand
Modernization backlog up 30%, orders up 11%
Management acknowledges near-term service margin pressure and headwinds from Middle East conflict, but expresses confidence in sequential improvement and returns to margin expansion by Q4, backed by strong orders and backlog.
Demand
Repair organic sales growth expected ~10%
Modernization backlog up 30%, orders up 11%. Management acknowledges near-term service margin pressure and headwinds from Middle East conflict, but expresses confidence in sequential improvement and returns to margin expansion by Q4, backed by strong orders and backlog.
Demand
New equipment orders strong in Americas, up 20%
Modernization backlog up 30%, orders up 11%. Management acknowledges near-term service margin pressure and headwinds from Middle East conflict, but expresses confidence in sequential improvement and returns to margin expansion by Q4, backed by strong orders and backlog.
AI, capex & demand read
Platform & monetization
Management highlighted the launch of Otis One IoT platform and a majority investment in WeMaintain, a digital and AI-enabled elevator service provider, to drive service growth and leverage data/AI for predictive maintenance and pricing. These investments are expected to contribute incremental growth and enhance competitive positioning.
Bookings & conversion
Modernization backlog up 30%, orders up 11%. Management acknowledges near-term service margin pressure and headwinds from Middle East conflict, but expresses confidence in sequential improvement and returns to margin expansion by Q4, backed by strong orders and backlog.
Investment and capacity
Management did not provide specific capex guidance, but mentioned investing in field colleagues, sales capabilities, and tools (including AI pricing algorithm) to support service growth, with $50 million of incremental investments in 2026. They also launched new products like Otis Robust for data centers and Otis Viva for aging populations.
Tone · Cautiously Confident
Management acknowledges near-term service margin pressure and headwinds from Middle East conflict, but expresses confidence in sequential improvement and returns to margin expansion by Q4, backed by strong orders and backlog.
Forward guidance
SofteningGuidance · revenue to $15.2B · was IN LINE last Q
| Metric | Period | Range | Midpoint | Status |
|---|---|---|---|---|
| EPS | FY2026 | $4.20–$4.24 | $4.22 | LOWERED |
| Free cash flow | FY2026 | $1.6B–$1.65B | $1.625B | GUIDED |
| Revenue | FY2026 | $15.1B–$15.3B | $15.2B | GUIDED |
Guidance credibility
1 / 1met or beat
| Issued | Metric | Target | Guide | Actual | Outcome |
|---|---|---|---|---|---|
| FY2025 Q3 | EPS | FY2025 | $4.04–$4.08 | $4.05 | Met / beat |