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July 28, 2020

Otis Reports Second Quarter 2020 Results

Delivers second quarter results with adjusted operating profit margin expansion...improves 2020 outlook
 
- 2Q20 net sales down 9.6%; organic sales down 6.5%
- 2Q20 GAAP operating profit down $65 million with 70 basis points of margin contraction
- 2Q20 adjusted operating profit down $39 million with 30 basis points of margin expansion
- 2Q20 New Equipment orders down 6.8%; backlog up 2% at constant currency
- 2Q20 GAAP cash flow from operations of $664 million; free cash flow of $628 million
- Improved full year organic sales, adjusted operating profit, adjusted EPS and free cash flow outlook*
 

FARMINGTON, Conn., July 28, 2020 /PRNewswire/ -- Otis Worldwide Corporation (NYSE: OTIS) reported second quarter 2020 net sales of $3.0 billion, a decrease of 6.5% organically versus the prior year. Second quarter GAAP and adjusted diluted earnings per share (EPS) decreased 26.8% to $0.52 and 5.1% to $0.56, respectively.

"Otis' second quarter results, considering COVID-19 related challenges, demonstrated the resiliency of our business, the strength of our strategy, and our ability to contain costs. We generated robust free cash flow, reinforcing our strong liquidity, grew global share and partnered with customers to deliver safety, health, and performance solutions. Our Otis colleagues showed great dedication and commitment to providing essential services and continuity to our customers in supporting their efforts to safely reopen job sites and buildings around the world," said President and CEO Judy Marks. "Our solid first half performance and execution on our long-term growth strategies give us the confidence to improve our 2020 outlook."

Key Figures

($ millions, except per share amounts)

Quarter Ended June 30, 2020

 

Six Months Ended June 30, 2020

2020

2019

Y/Y

Y/Y (CFX)

 

2020

2019

Y/Y

Y/Y (CFX)

Net sales

$

3,029

 

$

3,351

 

(9.6)

%

(7.0)

%

 

$

5,995

 

$

6,452

 

(7.1)

%

 

(4.8)

%

Organic sales

     

(6.5)

%

         

(4.4)

%

                   

GAAP

Operating profit

$

416

 

$

481

 

$

(65)

     

$

745

 

$

896

 

$

(151)

   

Operating profit margin

13.7

%

14.4

%

(70) bps

   

12.4

%

13.9

%

(150) bps

 

Net income

$

224

 

$

308

 

(27.3)

%

   

$

389

 

$

581

 

(33.0)

%

 

Earnings per share

$

0.52

 

$

0.71

 

(26.8)

%

   

$

0.90

 

$

1.34

 

(32.8)

%

 
                   

Adjusted non-GAAP comparison

Operating profit

$

457

 

$

496

 

$

(39)

 

$

(24)

   

$

907

 

$

929

 

$

(22)

 

$

3

 

Operating profit margin

15.1

%

14.8

%

30 bps

30 bps

 

15.1

%

14.4

%

70 bps

80 bps

Net income

$

244

 

$

258

 

(5.4)

%

   

$

506

 

$

525

 

(3.6)

%

 

Earnings per share

$

0.56

 

$

0.59

 

(5.1)

%

   

$

1.17

 

$

1.21

 

(3.3)

%

 

Second quarter net sales of $3.0 billion decreased 9.6% versus the prior year, with a 6.5% decline in organic sales, 2.6% headwind from foreign exchange and 0.5% impact from divestitures. Sales declined in both the New Equipment and Service segments primarily driven by the impact of COVID-19.

Second quarter GAAP operating profit of $416 million decreased $65 million from the prior year driven by segment operating profit decline of $66 million primarily from lower volume, incremental public company standalone costs and higher restructuring costs. GAAP operating profit margin contracted 70 basis points to 13.7%.

Adjusted operating profit of $457 million decreased $39 million with a $24 million decline at constant currency. Operating profit decline at constant currency was driven by a reduction of $46 million in the New Equipment segment, partially offset by operating profit growth of $14 million in the Service segment, lower corporate costs and the absence of unfavorable transactional foreign exchange impact from the prior year. Adjusted operating profit margin expanded 30 basis points to 15.1%, with continued margin expansion in the Service segment.

GAAP EPS of $0.52 decreased $0.19, driven by the decline in operating profit and higher interest expense. Adjusted EPS of $0.56 decreased $0.03, driven by adjusted operating profit decline partially offset by lower noncontrolling interest and a lower adjusted tax rate.

First half net sales declined 7.1% versus the prior year, with a 4.4% decline in organic sales and 2.7% headwind from foreign exchange and the impact from divestitures. GAAP operating profit decreased $151 million, with margin contraction of 150 basis points primarily due to higher separation costs, incremental public company standalone costs and a one-time charge taken in the first quarter. Adjusted operating profit increased $3 million at constant currency and margin expanded 80 basis points driven by strong performance in the Service segment.

New Equipment Segment

 

Quarter Ended June 30, 2020

 

Six Months Ended June 30, 2020

($ millions)

2020

2019

Y/Y

Y/Y (CFX)

 

2020

2019

Y/Y

Y/Y (CFX)

Net sales

$

1,294

 

$

1,500

 

(13.7)

%

(10.5)

%

 

$

2,417

 

$

2,771

 

(12.8)

%

(10.2)

%

Organic sales

     

(10.4)

%

       

(10.1)

%

                   

GAAP

Operating profit

$

79

 

$

138

 

$

(59)

     

$

143

 

$

197

 

$

(54)

   

Operating profit margin

6.1

%

9.2

%

(310) bps

   

5.9

%

7.1

%

(120) bps

 
                   

Adjusted non-GAAP comparison

Operating profit

$

91

 

$

142

 

$

(51)

 

$

(46)

   

$

156

 

$

206

 

$

(50)

 

$

(43)

 

Operating profit margin

7.0

%

9.5

%

(250) bps

(230) bps

 

6.5

%

7.4

%

(90) bps

(80) bps

                                                   

In the second quarter, net sales of $1.3 billion decreased 13.7% with a 10.4% decline in organic sales and a 3.2% impact from foreign exchange. Organic sales declined double digits in the Americas and EMEA, primarily due to the impact of COVID-19, offset by low single digit growth in Asia as China began to recover.

GAAP operating profit decreased $59 million to $79 million. Adjusted operating profit decreased $51 million to $91 million, primarily from the impact of lower volume and a $5 million headwind from foreign exchange. Material productivity and cost containment actions largely offset the impact of under-absorption, bad debt and unfavorable mix. GAAP operating profit was also impacted by higher restructuring costs. GAAP and adjusted operating profit margin contracted 310 and 250 basis points, respectively. 

New Equipment orders were down 6.8% at constant currency as 8.3% growth in China was more than offset by declines in other regions. On a rolling twelve-month basis, orders were flat. New equipment backlog at constant currency increased 2% versus prior year.

First half net sales declined 12.8% with a 10.1% organic decline. GAAP operating profit declined $54 million and margin contracted 120 basis points. Adjusted operating profit declined $43 million and margin contracted 80 basis points at constant currency.

Service Segment

 

Quarter Ended June 30, 2020

 

Six Months Ended June 30, 2020

($ millions)

2020

2019

Y/Y

Y/Y (CFX)

 

2020

2019

Y/Y

Y/Y (CFX)

Net sales

$

1,735

 

$

1,851

 

(6.3)

%

(4.1)

%

 

$

3,578

 

$

3,681

 

(2.8)

%

(0.8)

%

Organic sales

     

(3.3)

%

       

(0.1)

%

                   

GAAP

Operating profit

$

381

 

$

388

 

$

(7)

     

$

781

 

$

774

 

$

7

   

Operating profit margin

22.0

%

21.0

%

100 bps

   

21.8

%

21.0

%

80 bps

 
                   

Adjusted non-GAAP comparison

Operating profit

$

389

 

$

384

 

$

5

 

$

14

   

$

794

 

$

783

 

$

11

 

$

28

 

Operating profit margin

22.4

%

20.7

%

170 bps

170 bps

 

22.2

%

21.3

%

90 bps

90 bps

                                                   

In the second quarter, net sales of $1.7 billion decreased 6.3%, with a 3.3% decline in organic sales and a 3.0% headwind from foreign exchange and the impact of net acquisitions and divestitures. Organic maintenance and repair sales declined 3.6% and organic modernization sales declined 1.5%.

GAAP operating profit decreased $7 million to $381 million. Adjusted operating profit increased $5 million to $389 million as the benefit from favorable pricing and mix, productivity and cost containment actions more than offset the impact from lower volume, price concessions, bad debt and a $9 million headwind from foreign exchange. GAAP operating profit was also impacted by incremental public company standalone costs. GAAP and adjusted operating profit margin expanded 100 and 170 basis points, respectively.

First half net sales declined 2.8% from a slight decline in organic sales and a 2.7% headwind from foreign exchange and the impact of net acquisitions and divestitures. GAAP operating profit increased $7 million and margin expanded 80 basis points. Adjusted operating profit increased $28 million and margin expanded 90 basis points at constant currency.

Cash flow

 

Quarter Ended June 30, 2020

 

Six Months Ended June 30, 2020

($ millions)

2020

2019

Y/Y

 

2020

2019

Y/Y

Cash flow from operations

$

664

 

$

354

 

$

310

   

$

823

 

$

651

 

$

172

 

Free cash flow

$

628

 

$

319

 

$

309

   

$

748

 

$

588

 

$

160

 

Free cash flow conversion

280

%

104

%

   

192

%

101

%

 

Second quarter cash from operations of $664 million increased $310 million versus prior year primarily driven by favorable working capital performance. Second quarter free cash flow of $628 million increased $309 million versus prior year. The cash balance at the end of the second quarter was $1.9 billion.

First half cash from operations of $823 million increased $172 million and free cash flow increased $160 million to $748 million.

2020 Outlook*
Otis is improving its full year outlook to reflect strong first half performance and the anticipated recovery profile in the second half.

  • Net sales down 4.5 to 6.5%
  • Organic sales down 2 to 4%
    • Organic New Equipment sales down mid to high single digits
    • Organic Service sales flat to down low single digits
  • Adjusted operating profit flat to down $50 million at constant currency and down $40 to $100 million at actual currency
  • Adjusted EPS of $2.20 to $2.30; adjusted effective tax rate down 50 basis points to ~31.5%
  • Free cash flow of $1.0 to 1.1 billion with conversion of 130 to 140% of GAAP net income
  • 2020 debt repayment increased $100 million versus prior outlook to $350 million

*Note: When we provide outlook for organic sales, adjusted operating profit, adjusted effective tax rate and free cash flow on a forward-looking basis, a reconciliation of the differences between the non-GAAP expectations and the corresponding GAAP measures generally is not available without unreasonable effort. See "Use and Definitions of Non-GAAP Financial Measures" below for additional information.

About Otis
Otis is the world's leading elevator and escalator manufacturing, installation and service company. We move 2 billion people a day and maintain more than 2 million customer units worldwide, the industry's largest maintenance portfolio. Headquartered in Connecticut, USA, Otis is 69,000 people strong, including 40,000 field professionals, all committed to meeting the diverse needs of our customers and passengers in more than 200 countries and territories worldwide. For more information, visit www.otis.com and follow us on LinkedIn, Instagram, Facebook  and Twitter @OtisElevatorCo.

Use and Definitions of Non-GAAP Financial Measures
Otis Worldwide Corporation ("Otis") reports its financial results in accordance with accounting principles generally accepted in the United States ("GAAP"). We supplement the reporting of our financial information determined under GAAP with certain non-GAAP financial information. The non-GAAP information presented provides investors with additional useful information, but should not be considered in isolation or as substitutes for the related GAAP measures. Moreover, other companies may define non-GAAP measures differently, which limits the usefulness of these measures for comparisons with such other companies. We encourage investors to review our financial statements and publicly filed reports in their entirety and not to rely on any single financial measure. A reconciliation of the non-GAAP measures (referenced in this press release) to the corresponding amounts prepared in accordance with GAAP appears in the attached tables. These tables provide additional information as to the items and amounts that have been excluded from the adjusted measures. 

Organic sales, adjusted selling, general and administrative ("SG&A") expense, earnings before interest taxes and depreciation ("EBITDA"), adjusted EBITDA, adjusted operating profit, adjusted net income, adjusted diluted earnings per share ("EPS"), adjusted effective tax rate and free cash flow are non-GAAP financial measures.

Organic sales represents consolidated net sales (a GAAP measure), excluding the impact of foreign currency translation, acquisitions and divestitures completed in the preceding twelve months and other significant items of a non-recurring and/or nonoperational nature ("other significant items"). Management believes organic sales is a useful measure in providing period-to-period comparisons of the results of the Company's ongoing operational performance.

Adjusted SG&A expense represents SG&A expense (a GAAP measure), excluding restructuring costs, other significant items and allocated costs for certain functions and services previously performed by United Technologies Corporation ("UTC") prior to our separation ("UTC allocated costs") and including estimated standalone public company costs, as though Otis' operations had been conducted independently from UTC ("standalone costs"). Standalone costs for the 2019 fiscal year are based on quarterly estimates determined during Otis' annual planning process for the 2020 fiscal year.

Adjusted operating profit represents income from continuing operations (a GAAP measure), excluding restructuring costs, other significant items and allocated costs for certain functions and UTC allocated costs and including estimated standalone public company costs.

Adjusted net income represents net income from continuing operations (a GAAP measure), excluding restructuring costs and other significant items and UTC allocated costs and including estimated standalone public company costs, estimated adjustments to non-service pension expense, net interest expense and income tax expense as if Otis was a standalone public company ("standalone operating income adjustments"). Adjusted EPS represents diluted earnings per share from continuing operations (a GAAP measure), adjusted for the per share impact of restructuring, other significant items and standalone operating income adjustments.

The adjusted effective tax rate represents the effective tax rate (a GAAP measure) adjusted for the tax impact of restructuring costs, significant items and the tax impact of the additional adjustments (estimated standalone public company costs, interest expense and non-service pension expense).

EBITDA represents net income from operations (a GAAP measure), adjusted for noncontrolling interests, income tax expense, net interest expense, non-service pension expense and depreciation and amortization. Adjusted EBITDA represents EBITDA, as calculated above, adjusted for the impact of restructuring, other significant items and UTC allocated costs, including estimated standalone public company costs. Management believes that adjusted SG&A, EBITDA, adjusted EBITDA, adjusted operating profit, adjusted net income, adjusted EPS and the adjusted effective tax rate are useful measures in providing period-to-period comparisons of the results of the Company's ongoing operational performance as if it had been a standalone public company.

Additionally, GAAP financial results include the impact of changes in foreign currency exchange rates (AFX). We use the non-GAAP measure "at constant currency" or "CFX" to show changes in our financial results without giving effect to period-to-period currency fluctuations. Under U.S. GAAP, income statement results are translated in U.S. dollars at the average exchange rate for the period presented. Management believes that this non-GAAP measure is useful in providing period-to-period comparisons of the results of the Company's ongoing operational performance.

Free cash flow is a non-GAAP financial measure that represents cash flow from operations (a GAAP measure) less capital expenditures. Management believes free cash flow is a useful measure of liquidity and an additional basis for assessing Otis' ability to fund its activities, including the financing of acquisitions, debt service, repurchases of common stock and distribution of earnings to shareholders.

When we provide our expectations for organic sales, adjusted operating profit, adjusted net income, adjusted effective tax rate, adjusted EPS and free cash flow on a forward-looking basis, a reconciliation of the differences between the non-GAAP expectations and the corresponding GAAP measures (expected diluted EPS from continuing operations, operating profit, the effective tax rate, net sales and expected cash flow from operations) generally is not available without unreasonable effort due to potentially high variability, complexity and low visibility as to the items that would be excluded from the GAAP measure in the relevant future period, such as unusual gains and losses, the ultimate outcome of pending litigation, fluctuations in foreign currency exchange rates, the impact and timing of potential acquisitions and divestitures, and other structural changes or their probable significance. The variability of the excluded items may have a significant, and potentially unpredictable, impact on our future GAAP results.

Cautionary Statement
This communication contains statements which, to the extent they are not statements of historical or present fact, constitute "forward-looking statements" under the securities laws. From time to time, oral or written forward-looking statements may also be included in other information released to the public. These forward-looking statements are intended to provide management's current expectations or plans for Otis' future operating and financial performance, based on assumptions currently believed to be valid. Forward-looking statements can be identified by the use of words such as "believe," "expect," "expectations," "plans," "strategy," "prospects," "estimate," "project," "target," "anticipate," "will," "should," "see," "guidance," "outlook," "confident" and other words of similar meaning in connection with a discussion of future operating or financial performance or the separation and distribution. Forward-looking statements may include, among other things, statements relating to future sales, earnings, cash flow, results of operations, uses of cash, dividends, share repurchases, tax rates and other measures of financial performance or potential future plans, strategies or transactions of Otis following its separation from United Technologies Corporation, including the estimated costs associated with the separation and distribution and other statements that are not historical facts. All forward-looking statements involve risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied in the forward-looking statements. For those statements, Otis claims the protection of the safe harbor for forward-looking statements contained in the U.S. Private Securities Litigation Reform Act of 1995. Such risks, uncertainties and other factors include, without limitation: (1) the effect of economic conditions in the industries and markets in which Otis and its businesses operate in the U.S. and globally and any changes therein, including financial market conditions, fluctuations in commodity prices, interest rates and foreign currency exchange rates, levels of end market demand in construction, the impact of weather conditions, pandemic health issues (including COVID-19 and its effects, among other things, on global supply, demand, and distribution disruptions as the outbreak continues and results in an increasingly prolonged period of travel, commercial and/or other similar restrictions and limitations), natural disasters and the financial condition of Otis' customers and suppliers; (2) challenges in the development, production, delivery, support, performance and realization of the anticipated benefits of advanced technologies and new products and services; (3) future levels of indebtedness and capital spending and research and development spending; (4) future availability of credit and factors that may affect such availability, including credit market conditions and Otis' capital structure; (5) the timing and scope of future repurchases of Otis' common stock, which may be suspended at any time due to various factors, including market conditions and the level of other investing activities and uses of cash; (6) delays and disruption in delivery of materials and services from suppliers; (7) cost reduction efforts and restructuring costs and savings and other consequences thereof; (8) new business and investment opportunities; (9) the anticipated benefits of moving away from diversification and balance of operations across product lines, regions and industries; (10) the outcome of legal proceedings, investigations and other contingencies; (11) pension plan assumptions and future contributions; (12) the impact of the negotiation of collective bargaining agreements and labor disputes; (13) the effect of changes in political conditions in the U.S. and other countries in which Otis and its businesses operate, including the effect of changes in U.S. trade policies or the United Kingdom's withdrawal from the European Union, on general market conditions, global trade policies and currency exchange rates in the near term and beyond; (14) the effect of changes in tax, environmental, regulatory (including among other things import/export) and other laws and regulations in the U.S. and other countries in which Otis and its businesses operate; (15) the ability of Otis to retain and hire key personnel; (16) the scope, nature, impact or timing of acquisition and divestiture activity, including among other things integration of acquired businesses into existing businesses and realization of synergies and opportunities for growth and innovation and incurrence of related costs; (17) the expected benefits of the separation and distribution; (18) the determination by the Internal Revenue Service and other tax authorities that the distribution or certain related transactions should be treated as taxable transactions; (19) risks associated with indebtedness incurred as a result of financing transactions undertaken in connection with the separation; (20) the risk that dis-synergy costs, costs of restructuring transactions and other costs incurred in connection with the separation will exceed Otis' estimates; and (21) the impact of the separation on Otis' businesses and Otis' resources, systems, procedures and controls, diversion of management's attention and the impact on relationships with customers, suppliers, employees and other business counterparties. The above list of factors is not exhaustive or necessarily in order of importance. For additional information on identifying factors that may cause actual results to vary from those stated in forward-looking statements, see Otis' registration statements on Form 10 and Form S-3 and the reports of Otis on Forms 10-K, 10-Q and 8-K filed with or furnished to the SEC from time to time. Any forward-looking statement speaks only as of the date on which it is made, and Otis assumes no obligation to update or revise such statement, whether as a result of new information, future events or otherwise, except as required by applicable law.

Media Contact:

Ray Hernandez 

 

+1-860-674-3029

 

Ray.Hernandez@otis.com 

   

IR Contact:

Stacy Laszewski

 

+1-860-676-6011

 

investorrelations@otis.com 

 

Otis Worldwide Corporation

 

Condensed Consolidated Statements of Operations

 
   

Quarter Ended June 30,

 

Six Months Ended June 30,

   

(Unaudited)

 

(Unaudited)

(dollars in millions, except per share amounts)

2020

 

2019

 

2020

 

2019

Net Sales

$

3,029

   

$

3,351

   

$

5,995

   

$

6,452

 

Costs and Expenses:

             
 

Cost of products and services sold

2,138

   

2,367

   

4,207

   

4,567

 
 

Research and development

37

   

40

   

75

   

79

 
 

Selling, general and administrative

441

   

444

   

906

   

885

 
 

Total Costs and Expenses

2,616

   

2,851

   

5,188

   

5,531

 

Other income (expense), net

3

   

(19)

   

(62)

   

(25)

 

Operating profit

416

   

481

   

745

   

896

 
 

Non-service pension expense (benefit)

1

   

(11)

   

(2)

   

(22)

 
 

Interest expense (income), net

41

   

(3)

   

46

   

(2)

 

Income from operations before income taxes

374

   

495

   

701

   

920

 
 

Income tax expense

109

   

143

   

234

   

268

 

Net income from operations

265

   

352

   

467

   

652

 
 

Less: Noncontrolling interest in subsidiaries' earnings

41

   

44

   

78

   

71

 

Net income attributable to common shareholders

$

224

   

$

308

   

$

389

   

$

581

 

Earnings Per Share of Common Stock:

             
 

Basic

$

0.52

   

$

0.71

   

$

0.90

   

$

1.34

 
 

Diluted

$

0.52

   

$

0.71

   

$

0.90

   

$

1.34

 

Weighted Average Number of Shares Outstanding:

             
 

Basic shares

433.1

   

433.1

   

433.1

   

433.1

 
 

Diluted Shares

434.1

   

433.1

   

433.6

   

433.1

 

 

Otis Worldwide Corporation

 

Segment Net Sales and Operating Profit

 
 

Quarter Ended June 30,

 

Quarter Ended June 30,

 

(Unaudited)

 

(Unaudited)

(dollars in millions)

2020

 

2019

 

Reported

 

Adjusted

 

Reported

 

Adjusted

Net Sales

             

New Equipment

$

1,294

   

$

1,294

   

$

1,500

   

$

1,500

 

Service

1,735

   

1,735

   

1,851

   

1,851

 

Consolidated Net Sales

$

3,029

   

$

3,029

   

$

3,351

   

$

3,351

 
               

Operating Profit

             

New Equipment

$

79

   

$

91

   

$

138

   

$

142

 

Service

381

   

389

   

388

   

384

 

Segment Operating Profit

460

   

480

   

526

   

526

 

General corporate expenses and other

(44)

   

$

(23)

   

(45)

   

(30)

 

Consolidated Operating Profit

$

416

   

$

457

   

$

481

   

$

496

 
               

Segment Operating Profit Margin

             

New Equipment

6.1

%

 

7.0

%

 

9.2

%

 

9.5

%

Service

22.0

%

 

22.4

%

 

21.0

%

 

20.7

%

Total Operating Profit Margin

13.7

%

 

15.1

%

 

14.4

%

 

14.8

%

 
 
 

Six Months Ended June 30,

 

Six Months Ended June 30,

 

(Unaudited)

 

(Unaudited)

(dollars in millions)

2020

 

2019

 

Reported

 

Adjusted

 

Reported

 

Adjusted

Net Sales

             

New Equipment

$

2,417

   

$

2,417

   

$

2,771

   

$

2,771

 

Service

3,578

   

3,578

   

3,681

   

3,681

 

Consolidated Net Sales

$

5,995

   

$

5,995

   

$

6,452

   

$

6,452

 
               

Operating Profit

             

New Equipment

$

143

   

$

156

   

$

197

   

$

206

 

Service

781

   

794

   

774

   

783

 

Segment Operating Profit

924

   

950

   

971

   

989

 

General corporate expenses and other

(179)

   

(43)

   

(75)

   

$

(60)

 

Consolidated Operating Profit

$

745

   

$

907

   

$

896

   

$

929

 
               

Segment Operating Profit Margin

             

New Equipment

5.9

%

 

6.5

%

 

7.1

%

 

7.4

%

Service

21.8

%

 

22.2

%

 

21.0

%

 

21.3

%

Total Operating Profit Margin

12.4

%

 

15.1

%

 

13.9

%

 

14.4

%

 

Otis Worldwide Corporation

 

Reconciliation of Reported (GAAP) to Adjusted Operating Profit & Operating Profit Margin

 
 

Quarter Ended June 30,

 

Six Months Ended June 30,

 

(Unaudited)

 

(Unaudited)

(dollars in millions)

2020

 

2019

 

2020

 

2019

New Equipment

             

Net sales

$

1,294

   

$

1,500

   

$

2,417

   

$

2,771

 

GAAP Operating profit

79

   

138

   

143

   

197

 

Restructuring

12

   

8

   

13

   

14

 

  UTC allocated corporate expenses

   

2

   

   

3

 

  Public company standalone costs1

   

(4)

   

   

(7)

 

 Other

   

(2)

       

(1)

 

Adjusted New Equipment Operating Profit

$

91

   

$

142

   

$

156

   

$

206

 

Adjusted operating profit margin

7.0

%

 

9.5

%

 

6.5

%

 

7.4

%

Service

             

Net sales

$

1,735

   

$

1,851

   

$

3,578

   

$

3,681

 

GAAP Operating profit

381

   

388

   

781

   

774

 

Restructuring

8

   

8

   

13

   

27

 

  UTC allocated corporate expenses

   

4

   

   

7

 

  Public company standalone costs1

   

(16)

   

   

(25)

 

Adjusted Service Operating Profit

$

389

   

$

384

   

$

794

   

$

783

 

Adjusted Operating Profit Margin

22.4

%

 

20.7

%

 

22.2

%

 

21.3

%

               

General corporate expenses and other

             

General corporate expenses and other

$

(23)

   

$

(30)

   

$

(43)

   

$

(60)

 

Adjusted Total Operating Profit

$

457

   

$

496

   

$

907

   

$

929

 
               

Total Otis

             

GAAP Operating profit

416

   

481

   

745

   

896

 

Restructuring

20

   

15

   

26

   

40

 

   Loss on disposal of business

   

19

   

   

19

 

   One-time separation costs

21

   

3

   

53

   

3

 

   Fixed asset impairment  

   

   

67

   

 

   UTC allocated corporate expenses

   

19

   

16

   

36

 

  Public company standalone costs1

   

(42)

   

   

(64)

 

Other

   

1

   

   

(1)

 

Adjusted Total Operating Profit

$

457

   

$

496

   

$

907

   

$

929

 

Adjusted Operating Profit Margin

15.1

%

 

14.8

%

 

15.1

%

 

14.4

%

 

1 - Public company standalone costs represent estimated costs such as personnel costs, risk management and incentive compensation that have been incurred and are reflected in results for the quarter and six months ended June 30, 2020 and are not adjusted.  For the quarter ended and six months ended June 30, 2019, these standalone costs have been included in the adjustments, as though Otis' operations had been conducted independently from UTC. 

 

Otis Worldwide Corporation

 

Reconciliation of Reported (GAAP) to Adjusted (Non-GAAP) Net Income, Earnings Per Share, and Effective Tax Rate

 
 

Quarter Ended June 30,

Six Months Ended June 30,

 

(Unaudited)

(Unaudited)

(dollars in millions)

2020

 

2019

2020

 

2019

Adjusted Operating Profit

457

 

496

907

 

929

Non-service pension cost (benefit)3

1

 

(4)

(2)

 

(1)

Net interest expense2

(41)

 

(49)

(46)

 

(63)

Adjusted income from operations before income taxes

415

 

443

863

 

865

Income tax expense

109

 

143

234

 

268

Tax impact on restructuring and non-recurring items

20

 

4

39

 

10

Tax impact on other adjustments

 

(13)

 

(16)

Non-recurring tax items

1

 

7

6

 

7

Adjusted net income from operations

285

 

302

584

 

596

Noncontrolling interest

41

 

44

78

 

71

Adjusted net income attributable to common shareholders

244

 

258

506

 

525

             

GAAP income attributable to common shareholders

224

 

308

389

 

581

Restructuring

20

 

15

26

 

40

Loss on disposal of business

 

19

 

19

One-time separation costs

21

 

3

53

 

3

Fixed asset impairment

 

67

 

UTC allocated corporate expenses

 

19

16

 

36

Public company standalone costs1

 

(42)

 

(64)

Non-service pension cost3

 

(15)

 

(23)

Net interest expense2

 

(52)

 

(65)

Other

 

1

 

(1)

Tax effects of restructuring, non-recurring items and other adjustments

(20)

 

9

(39)

 

6

Non-recurring tax items

(1)

 

(7)

(6)

 

(7)

Adjusted net income attributable to common shareholders

244

 

258

506

 

525

             

Diluted Earnings Per Share

0.52

 

0.71

0.90

 

1.34

  Impact to diluted earnings per share

0.04

 

(0.12)

0.27

 

(0.13)

Adjusted Diluted Earnings Per Share

0.56

 

0.59

1.17

 

1.21

             

Effective Tax Rate

29.1

%

 

28.9

%

33.4

%

 

29.1

%

  Impact of adjustments on effective tax rate

2.2

%

 

2.9

%

(1.1)

%

 

2.0

%

Adjusted Effective Tax Rate

31.3

%

 

31.8

%

32.3

%

 

31.1

%

 

1 - Public company standalone costs represent estimated costs such as personnel costs, risk management and incentive compensation that have been incurred and are reflected in results for the quarter ended and six months ended June 30, 2020 and are not adjusted.  For the quarter ended and six months ended June 30, 2019, these standalone costs have been included in the adjustments, as though Otis' operations had been conducted independently from UTC. 

 

2 - Otis issued debt and began to incur interest expenses in February 2020 associated with the debt issuance.  The current quarter year-to-date actual interest expense incurred has been reflected in the comparative period in 2019 as though Otis incurred those expenses in the prior year.

 

3 - Non-service pension included in GAAP net income attributable to Otis includes amounts associated with Otis' participation in UTC retained pension plans. The amounts related to these plans are removed from Otis' results in 2019, as though Otis' operations had been conducted independently from UTC.  

 

Otis Worldwide Corporation

 

Components of Changes in Net Sales

 

Quarter Ended June 30, 2020 Compared with Quarter Ended June 30, 2019

 
   

Factors Contributing to Total % Change in Net Sales

   

Organic

 

FX
Translation

 

Acquisitions /
Divestitures,
net

 

Total

New Equipment

 

(10.4)%

 

(3.2)%

 

(0.1)%

 

(13.7)%

Service

 

(3.3)%

 

(2.2)%

 

(0.8)%

 

(6.3)%

Maintenance and Repair

 

(3.6)%

 

(2.4)%

 

(0.5)%

 

(6.5)%

Modernization

 

(1.5)%

 

(1.8)%

 

(1.9)%

 

(5.2)%

Total Net Sales

 

(6.5)%

 

(2.6)%

 

(0.5)%

 

(9.6)%

                 

Six Months Ended June 30, 2020 Compared with Six Months Ended June 30, 2019

 
         
   

Factors Contributing to Total % Change in Net Sales

   

Organic

 

FX
Translation

 

Acquisitions /
Divestitures,
net

 

Total

New Equipment

 

(10.1)%

 

(2.6)%

 

(0.1)%

 

(12.8)%

Service

 

(0.1)%

 

(2.0)%

 

(0.7)%

 

(2.8)%

Maintenance and Repair

 

(0.6)%

 

(2.1)%

 

(0.5)%

 

(3.2)%

Modernization

 

2.6%

 

(1.7)%

 

(2.0)%

 

(1.1)%

Total Net Sales

 

(4.4)%

 

(2.3)%

 

(0.4)%

 

(7.1)%

 

Otis Worldwide Corporation

 

Reconciliation of Adjusted Operating Profit at Constant Currency

 

Quarter Ended June 30, 2020 Compared with Quarter Ended June 30, 2019

   
             

dollars in millions

 

2020

 

2019

 

Y/Y

New Equipment

           

Adjusted Operating Profit

 

$

91

   

$

142

   

(51)

 

Impact of foreign exchange

 

5

   

   

5

 

Adjusted Operating Profit at constant currency

 

$

96

   

$

142

   

(46)

 
             

Service

           

Adjusted Operating Profit

 

$

389

   

$

384

   

5

 

Impact of foreign exchange

 

9

   

   

9

 

Adjusted Operating Profit at constant currency

 

$

398

   

$

384

   

14

 
             

Otis Consolidated

           

Adjusted Operating Profit

 

$

457

   

$

496

   

(39)

 

Impact of foreign exchange

 

15

   

   

15

 

Adjusted Operating Profit at constant currency

 

$

472

   

$

496

   

(24)

 
             
             

Six Months Ended June 30, 2020 Compared with Six Months Ended June 30, 2019

   
             

dollars in millions

 

2020

 

2019

 

Y/Y

New Equipment

           

Adjusted Operating Profit

 

$

156

   

$

206

   

(50)

 

Impact of foreign exchange

 

7

       

7

 

Adjusted Operating Profit at constant currency

 

$

163

   

$

206

   

(43)

 
             

Service

           

Adjusted Operating Profit

 

$

794

   

$

783

   

11

 

Impact of foreign exchange

 

17

       

17

 

Adjusted Operating Profit at constant currency

 

$

811

   

$

783

   

28

 
             

Otis Consolidated

           

Adjusted Operating Profit

 

$

907

   

$

929

   

(22)

 

Impact of foreign exchange

 

25

   

0

   

25

 

Adjusted Operating Profit at constant currency

 

$

932

   

$

929

   

3

 

 

Otis Worldwide Corporation

 

Condensed Consolidated Balance Sheet

 
 

June 30, 2020

 

December 31, 2019

(dollars in millions)

(Unaudited)

 

(Unaudited)

Assets

     

Cash and cash equivalents

$

1,912

   

$

1,446

 

Accounts receivable, net

2,865

   

2,861

 

Contract assets, current

484

   

529

 

Inventories, net

629

   

571

 

Other assets, current

502

   

251

 

Total Current Assets

6,392

   

5,658

 

Future income tax benefits

427

   

373

 

Fixed assets

1,828

   

1,803

 

Less: Accumulated depreciation

(1,124)

   

(1,082)

 

Fixed assets, net

704

   

721

 

Operating lease right-of-use assets

530

   

535

 

Intangible assets, net

458

   

490

 

Goodwill

1,639

   

1,647

 

Other assets

291

   

263

 

Total Assets

$

10,441

   

$

9,687

 
       

Liabilities and (Deficit) Equity

     

Short-term borrowings

$

33

   

$

34

 

Accounts payable

1,349

   

1,331

 

Accrued liabilities

1,917

   

1,739

 

Contract liabilities, current

2,463

   

2,270

 

Total Current Liabilities

5,762

   

5,374

 

Long-term debt

6,260

   

5

 

Future pension and postretirement benefit obligations

589

   

590

 

Operating lease liabilities

377

   

386

 

Future income tax obligations

439

   

695

 

Other long-term liabilities

590

   

311

 

Total Liabilities

14,017

   

7,361

 
       

Redeemable noncontrolling interest

96

   

95

 

Shareholders' (Deficit) Equity:

     

Preferred Stock, $0.01 par value, 125 share authorized; None issued or outstanding

   

 

Common Stock, $0.01 par value, 2,000 shares authorized; 433.1 shares issued and outstanding

4

   

 

Additional paid-in capital

15

   

 

Accumulated deficit

(3,418)

   

 

UTC Net Investment

   

2,458

 

Accumulated other comprehensive loss

(843)

   

(758)

 

Total Shareholders' (Deficit) Equity

(4,242)

   

1,700

 

Noncontrolling interest

570

   

531

 

Total (Deficit) Equity

(3,672)

   

2,231

 

Total Liabilities and (Deficit) Equity

$

10,441

   

$

9,687

 
         

Debt Ratios:

       

Debt to total capitalization

240%

   

2%

 

Net debt to net capitalization

618%

   

(171)%

 
 

Debt to total capitalization equals total debt divided by total debt plus equity. Net debt to net capitalization equals total debt less cash and cash equivalents divided by total debt plus equity less cash and cash equivalents.

 

Otis Worldwide Corporation

 

Condensed Consolidated Statement of Cash Flows

 
 

Quarter Ended June 30,

Six Months Ended June 30,

 

(Unaudited)

(Unaudited)

(dollars in millions)

2020

 

2019

2020

 

2019

Operating Activities:

           

Net income from operations

$

265

   

$

352

 

$

467

   

$

652

 

Adjustments to reconcile net income to net cash flows provided by operating activities:

           

Depreciation and amortization

49

   

46

 

92

   

91

 

Stock compensation cost

15

   

9

 

27

   

16

 

Loss on disposal of business

   

19

 

   

19

 

Loss on fixed asset impairment

   

55

   

Change in:

           

Accounts receivable, net

57

   

(38)

 

(59)

   

(94)

 

Contract assets and liabilities, current

(89)

   

(191)

 

266

   

77

 

Inventories, net

(22)

   

17

 

(71)

   

24

 

Other assets, current

18

   

18

 

(67)

   

25

 

Accounts payables and accrued liabilities

368

   

153

 

79

   

(156)

 

Contract liabilities, current

   

 

   

 

Pension contributions

(10)

   

(8)

 

(20)

   

(18)

 

Other operating activities, net

13

   

(23)

 

54

   

15

 

Net cash flows provided by operating activities

664

   

354

 

823

   

651

 

Investing Activities:

           

Capital expenditures

(36)

   

(35)

 

(75)

   

(63)

 

Investments in businesses, net of cash acquired

(11)

   

(13)

 

(16)

   

(32)

 

Investments in equity securities

   

 

(51)

   

 

Other investing activities, net

(3)

   

(26)

 

   

3

 

Net cash flows used in investing activities

(50)

   

(74)

 

(142)

   

(92)

 

Financing Activities:

           

Issuance of long-term debt, net

   

 

6,300

   

 

Payment of long-term debt issuance costs

   

 

(43)

   

 

Increase in short-term borrowings, net

(35)

   

1

 

1

   

16

 

Net transfers from (to) UTC

220

   

(24)

 

(6,330)

   

(330)

 

Dividends paid on common stock

(87)

   

 

(87)

   

 

Dividends paid to noncontrolling interest

(22)

   

(25)

 

(43)

   

(55)

 

Other financing activities, net

   

7

 

22

   

16

 

Net cash flows provided by (used in) financing activities

76

   

(41)

 

(180)

   

(353)

 

Summary of Activity:

           

Net cash provided by operating activities

664

   

354

 

823

   

651

 

Net cash used in investing activities

(50)

   

(74)

 

(142)

   

(92)

 

Net cash provided by (used in) financing activities

76

   

(41)

 

(180)

   

(353)

 

Effect of foreign exchange rate changes on cash and cash equivalents

17

   

(16)

 

(33)

   

4

 

Net (increase) in cash, cash equivalents and restricted cash

707

   

223

 

468

   

210

 

Cash, cash equivalents and restricted cash, beginning of period

1,220

   

1,333

 

1,459

   

1,346

 

Cash, cash equivalents and restricted cash, end of period

1,927

   

1,556

 

1,927

   

1,556

 

Less: Restricted cash

15

   

14

 

15

   

14

 

Cash and cash equivalents, end of period

$

1,912

   

$

1,542

 

$

1,912

   

$

1,542

 

 

Otis Worldwide Corporation

Free Cash Flow Reconciliation

 
 

Quarter Ended June 30,

 

(Unaudited)

(dollars in millions)

2020

 

2019

           

Net income attributable to common shareholders

$

224

     

$

308

   

Net cash flows provided by operating activities

$

664

     

$

354

   

Net cash flows provided by operating activities as a percentage of net income attributable to common shareholders

 

296

%

   

115

%

Capital expenditures

(36)

     

(35)

   

Capital expenditures as a percentage of net income attributable to common shareholders

 

(16)

%

   

(11)

%

Free cash flow

$

628

     

$

319

   

Free cash flow as a percentage of net income attributable to common shareholders

 

280

%

   

104

%

           
 

Six Months Ended June 30,

 

(Unaudited)

(dollars in millions)

2020

 

2019

           

Net income attributable to common shareholders

$

389

     

$

581

   

Net cash flows provided by operating activities

$

823

     

$

651

   

Net cash flows provided by operating activities as a percentage of net income attributable to common shareholders

 

212

%

   

112

%

Capital expenditures

(75)

     

(63)

   

Capital expenditures as a percentage of net income attributable to common shareholders

 

(20)

%

   

(11)

%

Free cash flow

$

748

     

$

588

   

Free cash flow as a percentage of net income attributable to common shareholders

 

192

%

   

101

%

 

Cision View original content:http://www.prnewswire.com/news-releases/otis-reports-second-quarter-2020-results-301100658.html

SOURCE Otis Worldwide Corporation