Otis Service Margins Expand to Record Highs While Modernization Orders Jump 43%

Service Drives Profit Expansion as Modernization Orders Surge

Otis Worldwide Corporation posted fourth quarter and full-year 2025 earnings underscored by its service segment, which delivered industry-leading margin expansion and powered growth across the business. Fourth quarter service net sales increased 8% (5% organic), while service operating profit margin hit a record 25.5%, up 100 basis points from a year earlier. Modernization orders surged an eye-catching 43% at constant currency, propelling the modernization backlog up 30%, and setting the stage for 2026.

Segment Breakdown: Service Margins Rise, New Equipment Weakness

While Otis’ service segment delivered robust margin growth, the new equipment business remained challenged. Organic new equipment sales dropped 6% in the fourth quarter, led by a steep >20% revenue decline in China and a mid-single digit drop in the Americas. The new equipment operating margin compressed by 110 basis points to 3.6%, reflecting volume pressure and tariffs—not fully offset by restructuring savings.

Modernization and Backlog Hit New Highs

Otis’ backlog in modernization and new equipment finished the year at record highs, fueled by the surge in modernization activity. This backlog growth is a positive forward-looking indicator, especially in the modernization segment, which now represents a growing share of overall revenue mix.

Cash Flow and Capital Return Remain Strong

Cash generation remains a core strength for Otis. The company returned a hefty $1.5 billion to shareholders through repurchases and dividends for the year, supporting a shareholder-friendly capital strategy even as net GAAP income slipped due to one-off tax items.

2026 Outlook: Momentum in Service and Modernization

Looking ahead, Otis projects 2026 organic sales to grow in the low- to mid-single digits, led by service revenue expected to increase mid- to high-single digits. Organic new equipment sales are forecast to range from flat to down low single digits, but the record backlog positions Otis for potential upside. Adjusted EPS is anticipated to climb mid- to high-single digits, with adjusted free cash flow targeted at $1.6–$1.7 billion.

Takeaway: Service and Modernization Drive Confidence Amid Mixed Environment

The clear message from Otis’ results: service and modernization are the core performance engines. Rising service margins and a ballooning modernization backlog help insulate the business from cyclical new equipment declines, particularly in China. The company’s strong cash flow and capital return policies continue to appeal to long-term shareholders. Investors should monitor whether the strong modernization trends persist and if new equipment softness stabilizes as 2026 unfolds.

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