Otis Worldwide Corporation (NYSE:OTIS) reported fourth quarter 2020 net sales of $3.5 billion with 1.3% organic growth. GAAP diluted earnings per share (EPS) increased 16.0% to $0.58 and adjusted diluted EPS increased 40.4% to $0.66. Full year net sales of $12.8 billion decreased 2.1% organically with GAAP diluted EPS decreasing 19.4% to $2.08 and adjusted diluted EPS increasing 12.5% to $2.52.
"Otis delivered a strong fourth quarter, ending a solid first year as an independent company. We returned to growth in the quarter while continuing to grow share, expand adjusted margin and generate robust cash flow demonstrating the dedication of our colleagues around the world to meet our commitments, even in trying economic times," said President and CEO Judy Marks. "By combining this positive momentum with improvements in our end markets, we expect to deliver 2% to 4% organic sales growth with high single-digit adjusted EPS growth and free cash flow conversion of about 120% in 2021*. This outlook reflects the resiliency of the business model, strength of our long-term strategy and a commitment to create value for our customers and shareholders."
| Key Figures | |||||||||||||||||||||||||||||||
| Quarter Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||||||||||
| ($ millions, except per share amounts) | 2019 | Y/Y | Y/Y (CFX) | 2020 | 2019 | Y/Y | Y/Y (CFX) | ||||||||||||||||||||||||
| 4.2 | 1.6 | (2.8) | (2.4) | 1.3 | (2.1) | ||||||||||||||||||||||||||
| GAAP | |||||||||||||||||||||||||||||||
| 12.6 | 13.0 | (40) bps | 12.8 | 13.8 | (100) bps | ||||||||||||||||||||||||||
| 15.1 | (18.8) | ||||||||||||||||||||||||||||||
| 16.0 | (19.4) | ||||||||||||||||||||||||||||||
| Adjusted non-GAAP comparison | |||||||||||||||||||||||||||||||
| 14.6 | 14.1 | 50 bps | 30 bps | 15.0 | 14.3 | 70 bps | 70 bps | ||||||||||||||||||||||||
| 40.5 | 12.9 | ||||||||||||||||||||||||||||||
| 40.4 | 12.5 | ||||||||||||||||||||||||||||||
GAAP EPS of $0.58 increased $0.08 and adjusted EPS of $0.66 increased $0.19, driven by operating profit growth and a lower effective tax rate. In addition, GAAP EPS growth was partially offset by higher interest expense.
Full year net sales declined 2.8% versus the prior year, with a 2.1% decline in organic sales. GAAP operating profit decreased $175 million while adjusted operating profit increased $47 million and $52 million at constant currency. Adjusted operating profit growth at constant currency was driven by strong performance in the Service segment, lower corporate costs and favorable transactional foreign exchange, partially offset by decline in the New Equipment segment. GAAP operating profit was also impacted by higher non-recurring separation costs, incremental public company standalone costs and non-recurring asset charges. GAAP operating profit margin contracted 100 basis points to 12.8% and adjusted operating profit margin expanded 70 basis points to 15.0%.
| New Equipment Segment | |||||||||||||||||||||||||||||||
| Quarter Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||||||||||
| 2020 | 2019 | Y/Y | Y/Y (CFX) | 2020 | 2019 | Y/Y | Y/Y (CFX) | ||||||||||||||||||||||||
| 7.3 | 5.0 | (4.9) | (4.1) | 4.8 | (4.0) | ||||||||||||||||||||||||||
| GAAP | |||||||||||||||||||||||||||||||
| 5.2 | 5.7 | (50) bps | 5.9 | 7.0 | (110) bps | ||||||||||||||||||||||||||
| Adjusted non-GAAP comparison | |||||||||||||||||||||||||||||||
| 5.9 | 5.7 | 20 bps | 20 bps | 6.5 | 7.1 | (60) bps | (50) bps | ||||||||||||||||||||||||
| Service Segment | |||||||||||||||||||||||||||||||
| Quarter Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||||||||||
| 2020 | 2019 | Y/Y | Y/Y (CFX) | 2020 | 2019 | Y/Y | Y/Y (CFX) | ||||||||||||||||||||||||
| 1.9 | (1.0) | (1.1) | (1.0) | (1.4) | (0.7) | ||||||||||||||||||||||||||
| GAAP | |||||||||||||||||||||||||||||||
| 21.5 | 21.9 | (40) bps | 21.8 | 21.5 | 30 bps | ||||||||||||||||||||||||||
| Adjusted non-GAAP comparison | |||||||||||||||||||||||||||||||
| 22.5 | 21.8 | 70 bps | 60 bps | 22.5 | 21.4 | 110 bps | 100 bps | ||||||||||||||||||||||||
| Cash flow | |||||||||||||||||||||||||||||||
| Quarter Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||||||||||
| 2020 | 2019 | Y/Y | 2020 | 2019 | Y/Y | ||||||||||||||||||||||||||
| 95 | 187 | 143 | 119 | ||||||||||||||||||||||||||||
Fourth quarter cash from operations of $309 million decreased $145 million. Fourth quarter free cash flow decreased $169 million to $238 million as working capital headwinds, timing of pension contributions and tax payments and a $26 million increase in capital expenditures was partially offset by higher GAAP net income.
Full year cash from operations of $1.5 billion increased $11 million. Full year free cash flow decreased $27 million to $1.3 billion as lower GAAP net income, including higher separation costs and interest expense, and a $38 million increase in capital expenditures was partially offset by favorable working capital performance and other operating activities.
2021 Outlook*
Otis is announcing its full year outlook:
- Net sales of $13.3 to $13.6 billion, up 4.5 to 6.5%
- Organic sales up 2 to 4%
- Organic New Equipment sales up 2 to 5%
- Organic Service sales up 2 to 4%
- Adjusted operating profit of $2.05 to $2.1 billion, up $125 to $175 million at actual currency; up $75 to $125 million at constant currency
- Adjusted EPS $2.67 to $2.77, up 6 to 10%; adjusted effective tax rate of approximately 29.5%
- Free cash flow of $1.3 to $1.4 billion with conversion of approximately 120% of GAAP net income
*Note: When we provide outlook for organic sales, adjusted operating profit, adjusted EPS, 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 Service 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.
