Q2 2024 Otis Worldwide Corp Earnings Call
Good morning and welcome to Otis's second quarter 2024 earnings conference call. This call is being carried live on the Internet and recorded for replay.
Operator: I'll now turn it over to Michael Rednor, Vice President, Investor Relations.
Presentation materials are available for download from Otis' website at www.otis.com. I'll now turn it over to Michael Rednor, Vice President, Investor Relations.
Michael S. Rednor: Thank you, Sarah. Welcome to Otis's second quarter 2024 earnings conference call. On the call with me today are Judy Marks, Anurag Maheshwari, and Christina Mendez.
Michael S. Rednor: Thank you, Sarah. Welcome to Otis's second quarter 2024 earnings conference call. On the call with me today are Judy Marks, Anurag Maheshwari, and Christina Mendez. Please note, except where otherwise noted, the company will speak to results from continuing operations excluding restructuring and significant non-recurring items.
Michael S. Rednor: Please note, except as otherwise noted, the company will speak to results from continuing operations, excluding restructuring and significant non-recurring items. A reconciliation of these measures can be found in the appendix of the webcast. We also remind listeners that the presentation contains forward-looking statements that are subject to risks and uncertainty. Otis' SEC filings, including our Form 10-K and quarterly reports on Form 10-Q, provide details on important factors that could cause actual results to differ materially. Now, I'd like to turn the call over to Judy.
Michael S. Rednor: A reconciliation of these measures can be found in the appendix of the webcast. We also remind listeners that the presentation contains forward-looking statements which are subject to risks and uncertainties.
Speaker Change: Otis' SEC filings including our Form 10-K and quarterly reports on Form 10-Q provide details on important factors that could cause actual results to differ materially. Now I'd like to turn the call over to Judy.
Judith F. Marks: Thank you, Mike, and good morning, afternoon, and evening, everyone. Thank you for joining us. I hope you are all safe and well.
Judy: Thank you, Mike, and good morning, afternoon, and evening, everyone. Thank you for joining us. I hope all are safe and well.
Judith F. Marks: I'd like to welcome Christina Mendez, who's joining us this morning on our earnings call. Christina is an experienced executive who's been leading our finance team at CFO in the EMEA region for the past two and a half years, while also leading our global finance transformation under our Uplift program. I look forward to my partnership with Christina to drive growth, operational execution, and value for our customers, colleagues, and shareholders. I want to also take this opportunity to thank Anurag for his leadership and for all his contributions to our company, our service growth, and in championing our long-term strategy.
Speaker Change: I'd like to welcome Cristina Mendez, who's joining us this morning on our earnings call.
Judy: Christina is an experienced executive who's been leading our finance team at CFO in the EMEA region for the past two and a half years while also leading our global finance transformation under our Uplift program.
Speaker Change: I look forward to my partnership with Christina to drive growth, operational execution, and value for our customers, colleagues, and shareholders.
Speaker Change: I want to also take this opportunity to thank Anurag for his leadership and for all his contributions to our company, our services growth, and in championing our long-term strategy.
Judith F. Marks: Now for earnings, starting with Q2 highlights on slide 3. Otis delivered a solid second quarter in the face of current economic challenges within China as the service segment continued to drive strong performance. Service Organic Sales grew mid-single digit.
Speaker Change: Now for earnings starting with Q2 highlights on slide 3. Otis delivered a solid second quarter in the face of current economic challenges within China as the service segment continued to drive strong performance.
Judith F. Marks: Overall, Adjusted Profit Margin expanded by 110 basis points, and Adjusted EPS grew 15%, marking our fourth consecutive quarter of 10% or greater Adjusted EPS growth. With service as our primary growth driver, we have set ourselves up well for the future by delivering maintenance portfolio growth of 4.2% and building our modernization backlog by 17% in a quarter, as a result of our steady business execution and capital allocation strategy. We generated $353 million in adjusted free cash flow and returned $300 million to shareholders through share repurchases in the quarter, taking year-to-date repurchases to $600 million.
Speaker Change: Service organic sales grew mid-single digits, overall adjusted profit margin expanded by 110 basis points, and adjusted EPS grew 15%, marking our fourth consecutive quarter of 10% or greater adjusted EPS growth.
Speaker Change: With service as our primary growth driver, we have set ourselves up well for the future by delivering maintenance portfolio growth of 4.2% and building our modernization backlog by 17% in the quarter.
Speaker Change: as a result of our steady business execution and capital allocation strategies.
Speaker Change: We generated $353 million in adjusted free cash flow and returned $300 million to shareholders through share repurchases in the quarter, taking year-to-date repurchases to $600 million.
Judith F. Marks: In June, we published our 2023 ESG report, outlining our progress towards our 13 ESG goals and explaining how this progress advances our business strategy while driving value for stakeholders. Importantly, this report includes a detailed description of our scope 1, 2, and 3 greenhouse gas emission reduction goals.
Speaker Change: In June , we published our 2023 ESG report, outlining our progress towards our 13 ESG goals, explaining how this progress advances our business strategy while driving value for stakeholders.
Speaker Change: Importantly, this report includes a detailed description of our scope 1, 2, and 3 greenhouse gas emission reduction goals.
Judith F. Marks: And we've continued to make progress towards our goals in 2024, including recently receiving ISO 45001 certification, the international standard that specifies the requirements and good practices for effective occupational health and safety management systems at our factory in Sao Bernardo, Brazil. Moving to our orders performance on slide four, new equipment orders were down 11% in the second quarter.
Speaker Change: And we've continued to make progress towards our goals in 2024, including recently receiving ISO 45001 certification.
Speaker Change: The International Standard that specifies the requirements and good practices for effective occupational health and safety management systems at our factory in Sao Bernardo, Brazil.
Speaker Change: Moving to our orders performance on slide 4.
Speaker Change: New equipment orders were down 11% in the second quarter.
Judith F. Marks: High single-digit growth in EMEA, driven by mid-teens growth in the Middle East and low to mid-single-digit growth in Asia-Pacific, was more than offset by a mid-teens decline in the Americas and a double-digit decline in China. Our new equipment backlog at constant currency was down 3% versus the prior year. In the Americas, we are seeing the impact of elevated interest rates on our new equipment orders. In China, economic softness severely impacted our new equipment orders, while orders grew in both Asia-Pacific due to continued strength in the region and EMEA as our investment in product and coverage continues to perform well.
Speaker Change: High single-digit growth in EMEA, driven by mid-teens growth in the Middle East, and low to mid-single-digit growth in Asia Pacific was more than offset by a mid-teens decline in the Americas and a double-digit decline in China.
Speaker Change: Our new equipment backlog at constant currency was down 3% versus the prior year.
Speaker Change: In the Americas, we are seeing the impact of elevated interest rates on our new equipment orders.
Speaker Change: In China, economic softness severely impacted our new equipment orders, while orders grew in both Asia-Pacific due to continued strength in the region, and EMEA as our investment in product and coverage continues to perform well.
Judith F. Marks: In our services segment, progress continued apace, with portfolio growth above 4% for the seventh consecutive quarter, along with 14% of modernization orders growth and continued growth in our modernization backlog, which increased 17% at constant currency. We had several exciting customer highlights in the second quarter, thanks to the dedication of our colleagues across all of our regions. In India, at the heart of the city of Delhi, Otis will install 12 Skyrise units at the iconic Unity the Amaryllis Versace. Designed by Versace Home, this luxury development is one of the tallest residential buildings in Delhi.
Speaker Change: In our services segment, progress continued to pace, with portfolio growth above 4% for the 7th consecutive quarter, along with 14% modernization orders growth and continued growth in our modernization backlog, which increased 17% at constant currency.
Speaker Change: We had several exciting customer highlights in the second quarter, thanks to the dedication of our colleagues across all of our regions.
Speaker Change: In India, at the heart of the city of Delhi, Otis will install 12 Skyrise units at the iconic Unity the Amaryllis Versace. Designed by Versace Home, this luxury development is one of the tallest residential buildings in Delhi.
Judith F. Marks: We continue to perform well in the infrastructure segment, as evidenced by our next three major projects highlighted. In the United States, Otis is supporting the expansion of Terminal 3 West at San Francisco International Airport. As part of this project, Otis will install 15 new Gen 3 elevators and 13 link escalators while modernizing two elevators. SFOs served more than 50 million passengers in 2023, and these upgrades will increase overall passenger capacity and international access.
Speaker Change: We continue to perform well in the infrastructure segment as evidenced by our next three major project highlights. In the United States, Otis is supporting the expansion of Terminal 3 West at San Francisco International Airport.
Speaker Change: As part of this project, Otis will install 15 new Gen 3 elevators and 13 link escalators while modernizing two elevators.
Speaker Change: SFOs served more than 50 million passengers in 2023, and these upgrades will increase overall passenger capacity and international access.
Judith F. Marks: In Germany, we are installing eight escalators for our long-established customer, the city of Stuttgart. We'll dismantle the non-Otis escalators that are currently in use and install our heavy traffic public escalators at four metro stations in the city center. In China, we continued our more than 30-year relationship with the Shanghai Metro, booking several contracts in the quarter that total more than 475 units, including 311 escalators and moving walks for Line 23, 32 elevators and 115 escalators for the New Chong Ming Line, and 19 elevators for an extension of Line 12.
Speaker Change: In Germany, we are installing eight escalators for our long-established customer, the city of Stuttgart. We'll dismantle the non-Otis escalators that are currently in use and install our heavy traffic public escalators at four metro stations in the city center.
Speaker Change: In China, we've continued our more than 30-year relationship with the Shanghai Metro, booking several contracts in the quarter that total more than 475 units.
Speaker Change: including 311 escalators and moving walks for Line 23, 32 elevators and 115 escalators for the new Chong Ming Line, and 19 elevators for an extension of Line 12.
Judith F. Marks: Turning to Q2 results, on slide 5, Otis delivered net sales of $3.6 billion, with organic sales down 1%. The adjusted operating profit, excluding a $15 million foreign exchange headwind, was up $38 million, driven by the service segment. Adjusted EPS grew approximately 15% or $0.14 in the quarter, driven by strong operational performance and improvement in our tax. Benefits from minority interest and a lower share count offset headwinds from foreign exchange translation and an increase in interest expense. With that, I'll turn it over to Anurag to walk through our results in more detail.
Speaker Change: Turning to Q2 results on slide 5.
Speaker Change: Otis delivered net sales of $3.6 billion with organic sales down 1%.
Speaker Change: Adjusted operating profit, excluding a $15 million foreign exchange headwind, was up $38 million, driven by the service segment.
Speaker Change: Adjusted EPS grew approximately 15% or 14 cents in the quarter driven by strong operational performance and improvement in our tax rate.
Speaker Change: benefits from minority interest and a lower share count offset headwinds from foreign exchange translation and an increase in interest expense. With that I'll turn it over to Anurag to walk through our results in more detail.
Anurag Maheshwari: Thank you, Judy, starting with Q2 segment sales performance on slide 6. Total organic sales were down 1% in the quarter, driven by new equipment, which was down 9% compared to the prior year. APAC grew approximately 10% driven by strong performances in Southeast Asia and India, while the Americas grew low single digits. EMEA experienced a low single-digit decline due to continued weakness in Central Europe, while China declined double digits, largely due to the deterioration in market conditions.
Anurag: Thank You Judy. Starting with Q2 segment sales performance on slide 6. Total organic sales were down 1% in the quarter driven by new equipment which was down 9% compared to the prior year.
Anurag: APAC grew approximately 10% driven by strong performances in Southeast Asia and India while the Americas grew low single digits.
Anurag: EMEA experienced a low single-digit decline due to continued weakness in Central Europe , while China declined double digits largely due to the deterioration in market conditions.
Anurag Maheshwari: New equipment pricing was strong outside of China, up low to mid-single-digit percent. However, China remains under intense price pressure, and although pricing in China was down year over year, it came in approximately flat sequentially while the cost environment remains deflationary.
Anurag: New equipment pricing was strong outside of China, up low to mid-single digits.
Anurag: China remains under intense price pressure and although pricing in China was down year over year, it came in approximately flat sequentially while the cost environment remains deflationary.
Anurag Maheshwari: Service sales were $2.2 billion, with organic sales growth of 5.1 percent, marking over three years of mid-single-digit or greater growth in every quarter. We grew in all regions and all lines of business, including approximately 5% in maintenance and repair as a result of strong portfolio growth, solid repair volumes, and maintenance pricing, which was up 3.5 points, excluding the impact of make-sensure. Driven by continued double-digit growth in Asia-Pacific, MOD's organic sales increased about 6% in the quarter and 8% in the first quarter.
Anurag: Service sales were $2.2 billion, with organic sales growth of 5.1%, marking over three years of mid-single-digit or greater growth in every quarter.
Anurag: We grew in all regions and all lines of business, including approximately 5% in maintenance and repair as a result of strong portfolio growth, solid repair volumes, and maintenance pricing, which was up 3.5 points, excluding the impact of mixed insurance.
Anurag: Driven by continued double-digit growth in Asia-Pacific, MOD organic sales increased about 6% in the quarter and 8% in the first half.
Anurag Maheshwari: Turning to Q2 segment operating performance on slide 7, new equipment operating profit of $110 million was down $6 million at constant currency, mainly due to the impacts of lower volume and mixed headwaters. Pricing outside of China, productivity, including benefits from uplift, and commodity tailwinds largely offset the volume and mix impact. Nothing to improve margins by 30 basis points to 7.7%, ahead of our expectations. Service operating profit of $538 million, increased by $51 million at constant currency, has dropped through on higher volume, favorable pricing, and productivity, including benefits from uplift, more than offset annual wage inflation.
Anurag: Turning to Q2 segment operating performance on slide 7.
Anurag: New equipment operating profit of $110 million was down $6 million at constant currency mainly due to the impacts of lower volume and mixed headwinds.
Anurag: Pricing outside of China, productivity, including benefits from uplift, and commodity tailwinds largely offset the volume and mixed impacts, netting to improved margins of 30 basis points to 7.7% ahead of our expectation.
Anurag: Service operating profit of $538 million increased $51 million at constant currency as drop through on higher volume, favorable pricing, and productivity including benefits from uplift more than offset annual wage inflation.
Anurag Maheshwari: This led to margin expansion of 110 basis points in the quarter. Our focus on cost control, alongside the ramp of uplift initiatives, drove lower SG&A absolute dollars while improving our adjusted SG&A as a percent of sales by 30 basis points year-over-year. For the first half, despite an inflationary environment, our SG&A dollars reduced by approximately $30 million and improved by 30 basis points as a percent of sales. We are very pleased with the progress and uplift across the three levers we've outlined, with benefits ramping quicker than anticipated.
Anurag: This led to margin expansion of 110 basis points in the quarter.
Anurag: Our focus on cost control, alongside the ramp of uplift initiatives, drove lower SG&A absolute dollars while improving our adjusted SG&A as a percent of sales by 30 basis points year over year.
Anurag: For the first half, despite an inflationary environment, our SG&A dollars reduced by approximately $30 million and improved by 30 basis points as a percent of sales.
Anurag: We are very pleased with our progress and uplift across the three levers we've outlined with benefits ramping quicker than anticipated.
Anurag Maheshwari: Our streamlined functional structure is yielding productivity benefits while allowing us to leverage our global scale to drive cost savings, especially in our digital technology operations and other indirect services. With solid service performance and while navigating a challenging new equipment environment, we expanded overall operating profit margins by 110 basis points and grew adjusted EPS by 14 cents, or 15%. Shifting to cash, despite lower new equipment orders, we generated $353 million of free cash flow in the second quarter, and we expect to largely reverse the working capital bill by year-end.
Anurag: Our streamlined functional structure is yielding productivity benefits while allowing us to leverage our global scale to drive cost savings, especially with our digital technology operations and other indirect spend.
Anurag: With solid service performance and while navigating a challenging new equipment environment, we expanded overall operating profit margins by 110 basis points and grew adjusted EPS 14 cents or 15 percent.
Anurag: Shifting to cash, despite lower new equipment orders, we generated $353 million of free cash flow in the second quarter, and we expect to largely reverse the working capital bill by year end.
Anurag Maheshwari: Overall, we had a very strong first-half performance, overcoming weakness in the Chinese market. We grew organic sales 1.2%, led by performance in the Americas, EMEA, and Asia-Pacific, which were up mid-single digits, as well as strength in our service segment. This growth, in conjunction with good traction on uplift, productivity, pricing, and commodity tailwinds, helped us expand margins by 100 basis points and grow EPS by 13%, positioning us well for the second half. Now, I will turn it back to Judy to discuss the 2024 Outlook.
Anurag: Overall, we had a very strong first half performance, overcoming weakness in the China market.
Anurag: We grew organic sales 1.2%, led by performance in the Americas, EMEA, and Asia-Pacific, which were up mid-single digits, as well as strength in our service segment.
Anurag: This growth, in conjunction with good traction on uplift, productivity, pricing, and commodity tailwinds, helped us expand margins by 100 basis points and grow EPS 13%, positioning us well for the second half.
Anurag: Let me now turn it back to Judy to discuss the 2024 Outlook.
Judith F. Marks: Now on slide eight. Before turning to our updated 2024 financial outlook, let me briefly update you on our industry outlook. For the new equipment market, our expectations for the Americas and EMEA remain unchanged, down low single digits in units. We now expect Asia to be down high single digits in units versus the prior outlook of down mid-single digits driven by weakness in China. There is no change to our outlook for Asia-Pacific, as the region has continued to perform well.
Judy: Now on slide 8. Before turning to our updated 2024 Financial Outlook, let me briefly update you on our Industry Outlook.
Judy: For the new equipment market, our expectations for the Americas and EMEA remain unchanged, down low single digit in units.
Judy: We now expect Asia to be down high single digits in units versus the prior outlook of down mid-single digits driven by weakness in China. There is no change to our outlook for Asia-Pacific as the region has continued to perform well.
Judith F. Marks: We're revising China to be down 10% to down 15% as activity is weaker than we previously expected. While new equipment markets remain under pressure, we continue to see strength in the service market, with low single-digit growth in the Americas and EMEA and mid-single-digit growth in Asia. The global installed base is expected to grow mid-single digits in 2024, adding roughly 1 million units from units that were installed within the last two years and are now rolling off their warranty period.
Judy: We're revising China to be down 10 to down 15 percent as activity is weaker than we previously expected.
Judy: While new equipment markets remain under pressure, we continue to see strength in the service market, with low single-digit growth in the Americas and EMEA, and mid-single-digit growth in Asia.
Judy: The global install base is expected to grow mid-single digits in 2024, adding roughly 1 million units from units that were installed within the last two years and are now rolling off their warranty period.
Judith F. Marks: Turning to Otis's 2024 financial outlook, we now expect sales in the range of $14.3 to $14.5 billion, with organic sales growth of 1 to 3 percent. While we see continued strength in the service business for the remainder of the year, this decrease in organic sales versus our prior outlook is driven by new equipment, which Anurag will discuss in a moment. Adjusted Operating Profit is in line with prior expectations, still expected to be up $135 to $175 million at actual currency and up $160 to $190 million at constant currency.
Judy: Turning to Otis's 2024 financial outlook, we now expect sales in the range of $14.3 to $14.5 billion with organic sales growth of 1 to 3 percent.
Judy: While we see continued strength in the service business for the remainder of the year, this decrease in organic sales versus our prior outlook is driven by new equipment, which Anurag will discuss in a moment.
Anurag: Adjusted operating profit is in line with prior expectations, still expected to be up $135 to $175 million at actual currency and up $160 to $190 million at constant currency.
Judith F. Marks: Adjusted EPS is now expected in the range of $3.85 to $3.90, up 9% to 10%. 2 cents of improvement versus the low end of the prior guide, driven by strong operational performance and a benefit from a lower share price. We anticipate adjusted free cash flow to come within a range of $1.5 to $1.6 billion.
Anurag: Adjusted EPS is now expected in the range of $3.85 to $3.90, up 9% to 10%.
Anurag: with two cents improvement versus the low end of the prior guide, driven by strong operational performance and a benefit from a lower share count.
Anurag: We anticipate adjusted free cash flow to come within a range of $1.5 to $1.6 billion.
Judith F. Marks: Before handing it back to Anurag to outline the 2024 segment outlook in more detail, let me turn to slide nine to provide an update on Project Uplift and our progress to date. We now anticipate run rate savings of $175 million by mid-2025 as we have made solid progress executing on the program. Two areas where we're seeing additional benefit versus our prior expectations are through further streamlining of our global operating model and incremental optimization of indirect spend in areas such as digital technology and infrastructure.
Speaker Change: Before handing it back to Anurag to outline the 2024 Segment Outlook in more detail, let me turn to slide 9 to provide an update on Project Uplift and our progress to date.
Speaker Change: We now anticipate run rate savings of $175 million by mid-2025 as we have made solid progress executing on the program.
Speaker Change: Two areas where we're seeing additional benefit versus our prior expectations are through further streamlining of our global operating model and incremental optimization of indirect spend in areas such as digital technology and infrastructure.
Judith F. Marks: As we exit 2024, our anticipated in-year savings are now slated to be approximately $60 million, with a 2024 exit run rate of approximately $100 million. Overall, the program is on track. We're performing well versus our internal benchmarks and timeline, and we look forward to sharing additional updates with you in the coming quarters. Anurag, over to you. Thank you.
Speaker Change: As we exit 2024, our anticipated in-year savings are now slated to be approximately $60 million, with a 2024 exit run rate of approximately $100 million.
Anurag: Overall, program is on track. We're performing well versus our internal benchmarks and timeline, and we look forward to sharing additional updates with you in the coming quarters. Anurag, over to you. Thank you, Judy. Taking a more detailed look at our outlook and starting with sales on slide 10.
Anurag Maheshwari: Thank you, Judy. Taking a more detailed look at our outlook and starting with sales on slide two, we now expect total organic sales to be up 1 to 3%. Overall, new equipment organic sales are now expected to be down mid-single digits due to a market-driven decline in China, which we now expect to be down approximately 20%. The outlook for the Americas, EMEA, and Asia-Pacific remains unchanged, up mid-s
Anurag: We now expect total organic sales to be up 1-3%.
Anurag: Overall, new equipment organic sales are now expected to be down mid-single digits from market-driven decline in China, which we now expect to be down approximately 20%.
Anurag: The outlook for the Americas, EMEA, and Asia-Pacific remains unchanged, up mid-single digits combined.
Anurag Maheshwari: Service organic sales are anticipated to grow 6-7% in line with prior guidance. This includes maintenance and repair within a range of 5.5 to 6.5 percent, and for modernization, we anticipate growth of 8 to 9 percent as solid order momentum and an expanding backlog provide a good line of sight to achieve approximately 10 percent growth in the second half. Turning to slide 11.
Anurag: Service organic sales are anticipated to grow 6-7% in line with prior guidance.
Anurag: This includes maintenance and repair within a range of 5.5 to 6.5 percent, and for modernization we anticipate growth of 8 to 9 percent as solid orders momentum and an expanding backlog provide good line of sight to achieve approximately 10 percent growth in the second half.
Anurag Maheshwari: At constant currency, operating profits should grow $160 to $190 million, unchanged versus prior expectations, with improving contributions from service and productivity, including uplift, offsetting new equipment volume and mixing. In service, we now expect operating profit margins to expand approximately 75 basis points, an increase of 25 basis points versus the prior guide, driven by solid volumes and even better productivity. For new equipment, despite the weakness in China, the operating profit margin is expected to be roughly flat versus the prior year.
Anurag: Turning to slide 11. At constant currency, operating profits should grow $160-$190 million, unchanged versus prior expectations, with improving contributions from service and productivity, including uplift, offsetting new equipment volume, and mixed headwinds.
Anurag: In service, we now expect operating profit margin to expand approximately 75 basis points, an increase of 25 basis points versus the prior guide, driven by solid volumes and even better productivity.
Anurag: For new equipment, despite the weakness in China, operating profit margin is expected to be roughly flat versus the prior year, a change versus a prior estimate of flat to up 10 basis points.
Anurag Maheshwari: A change versus a prior estimate of flat to up 10 basis points. Productivity and pricing are offsetting the added volume and mix impact from a weaker China. We now expect an overall adjusted operating profit margin expansion of 80 basis points as a result of service volume, productivity, and pricing tailoring. This represents a 30-basis point improvement versus a prior... Turning to cash flow, we expect to achieve adjusted free cash flow in the range of $1.5 to $1.6 billion with net income growth partially offset by changes in working capital. Moving to the 2024 EPS bridge on slide.
Anurag: Productivity and pricing are offsetting the added volume and mixed impact from a weaker China outlook.
Anurag: We now expect overall adjusted operating profit margin expansion of 80 basis points as a result of service volume, productivity, and pricing tailwinds.
Anurag: This represents a 30-basis point improvement versus a prior outlook.
Anurag: Turning to cash flow, we expect to achieve adjusted free cash flow in the range of $1.5 to $1.6 billion with net income growth partially offset by changes in working capital.
Anurag Maheshwari: We have raised the low end of our outlook for adjusted EPS by two cents to a range of $3.85 to $3.90. At the midpoint, this is 34 cents of EPS growth versus the prior year, driven by operational performance. At constant currency, we expect approximately 32 cents of operating profit growth, a level loaded between the first and the second. Reductions in the effective tax rate and a lower share count more than offset headwinds from higher interest expense and foreign exchange.
Anurag: Moving to the 2024 EPS bridge on slide 12.
Anurag: We have raised the low end of our outlook for adjusted EPS by two cents to a range of $3.85 to $3.90.
Anurag: At the midpoint, this is 34 cents of EPS growth versus the prior year, driven by operational performance.
Anurag: At constant currency, we expect approximately 32 cents of operating profit growth, level loaded between the first and the second half.
Anurag: Reductions in the effective tax rate and a lower share count more than offset headwinds from higher interest expense and forex.
Anurag Maheshwari: In closing, first-half results demonstrate our ability to continue performing despite macro... There is a lot in our control in the second half, and we are focused on growing our portfolio, leveraging our expanding mod backlog, while ramping up the uplift program and driving productivity throughout the organization. This sets us up well to achieve a full year outlook of approximately 10% EPS growth in line with a medium-term guide. With that, Sarah, please open the line.
Anurag: In closing, first-half results demonstrate our ability to continue performing despite macro headwinds.
Anurag: There is a lot in our control in the second half and we are focused on growing our portfolio, leveraging our expanding mod backlog, while ramping on the uplift program and driving productivity throughout the organization.
Anurag: This sets us up well to achieve a full year outlook of approximately 10% EPS growth in line with a medium-term guide.
Anurag: With that, Sarah, please open the line for questions.
Operator: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. Please ensure that your phone is not on mute when called upon. Your first question comes from the line of Jeff Sprague with Vertical Research Partners. Your line is open.
Sarah: Thank you. If you would like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, simply press star one again. Please ensure that your phone is not on mute when called upon.
Speaker Change: Your first question comes from the line of Jeff Sprague with Vertical Research Partners. Your line is open.
Jeffrey Todd Sprague: Thank you. Good morning, Judy, Anurag, and Christopher.
Judith F. Marks: Good morning, Jeff. Good morning. I guess first, Anurag, we're going to miss you, but I'm guessing we're not really going to miss you, but do you have anything to say about what your plans are?
Jeffrey Todd Sprague: Thank you. Good morning, Judy, Anurag, and Christina.
Jeffrey Todd Sprague: Good morning, Jeff. Good morning. I guess first, Anurag, we're going to miss you, but I'm guessing we're not really going to miss you, but do you have anything to say about what your plans are?
Anurag Maheshwari: There's more to come here, but I focus on closing the earnings call right now and a smooth transition with Christina. Thanks for the question.
Anurag: There's more to come here, but focus on closing the earnings call right now and a smooth transition with Christina. Thanks for the question, Jeff.
Judith F. Marks: Judy, can we drill a little bit more just into China? Obviously, it's kind of readily apparent things are just challenging there from a macro standpoint, but I think you noted service was growing mid-single digit in Asia. I don't know if you said China. If you did, I missed it.
Anurag: Awesome.
Judy: Judy can we drill a little bit more just into to China obviously it's
Speaker Change: Kind of readily apparent things are just challenging there from a from a macro standpoint
Speaker Change: But I think you noted service was growing mid-single-digit in Asia. I don't know if you said China. If you did, I missed it. So maybe just give us a little bit more color on sort of the counteractions you're taking there to kind of support and drive profitability in-country.
Judith F. Marks: Maybe just give us a little bit more color on sort of the counteractions you're taking there to kind of support and drive profitability.
Judith F. Marks: Yeah, thanks Jeff, and great to be with you this morning. Our service business in China, specifically, units are up high teens for another quarter, mod orders are up high single-digits, mod sales are up double-digits, and we're really pleased with the pivot we've made, and now this is now a multi-year strategy we've been implementing to have a greater focus and yield in China on service. Almost a third of our revenue now in China is in service, and that's twice what it was when we spun out.
Speaker Change: Yeah, thanks, Jeff, and great to be with you this morning.
Speaker Change: Our service business in China, specifically, units are up high teens.
Speaker Change: for another quarter.
Speaker Change: Mod orders are up high single-digit, mod sales are up double-digit, and we're really pleased with the pivot we've made, and now this is now a multi-year strategy we've been implementing to have a greater focus and yield in China on service.
Speaker Change: Almost a third of our revenue now in China is in service.
Judith F. Marks: Our portfolio has more than doubled and is up again this quarter, as I said, in the high teens, so our service strategy is coming along nicely, and we're seeing the acceleration of mod in China and anticipate that to continue to move double-digit as we look out, you know, into the medium term for China. However, the new equipment market does remain weak. We called it down 15% for the second quarter after being down 10% in the first quarter, but with what we know on the ground from Sally and the team for the full year, we're saying it's going to be down 10 to 15%.
Speaker Change: and that's twice what it was when we spun. Our portfolio has more than doubled and is up again this quarter, as I said, high teens.
Speaker Change: So, our service strategy is coming up nicely and we're seeing the acceleration of mod in China and anticipate that to continue to move double digit as we look out into the medium term for China.
Speaker Change: The new equipment market does remain weak.
Speaker Change: We called it down 15% for the second quarter, after being down 10% in the first quarter. But with what we know on the ground from Sally and the team, for the full year, we're saying it's going to be down 10 to 15%.
Judith F. Marks: Our team has done a really nice job of being able to manage the cost side in a very competitive market, but that market this year, we're saying for China is going to be between 425 and 450,000 units. Again, focused on growing service, continuing to drive out cost in a deflationary environment, but always balancing price and volume so that we make sure that our backlog remains healthy in China. 425,000 to 450,000 units is still a very nicely sized market, but this is the third year of decreases, and I think our strategy and implementation have pivoted to service to be able to reflect that. It's why we took our guide down in terms of top line revenue now to be organic one to three percent.
Sally: Our team has done a really nice job in being able to manage the cost side in a very competitive market. But that market this year we're saying for China is going to be between 425,000 and 450,000 units.
Sally: Again, focused on growing service, continuing to drive out cost in a deflationary environment.
Sally: but always balancing price.
Sally: and volume so that we make sure that our backlog remains healthy in China.
Sally: 425 to 450,000 units is still a very nicely sized market, but this is the third year of decreases and I think our strategy and implementation has pivoted to service to be able to reflect that.
Sally: It's why we took our guide down in terms of top-line revenue now to be organic 1-3%. That is all driven by this new equipment decline there.
Judith F. Marks: That is all driven by this new equipment decline there. But as you can see with our profitability this quarter for the first half, even our profit margin expansion in new equipment, despite being down several hundred million dollars in revenue, you're seeing the resilience of not just our service-driven model, but I think you're seeing again sustained quarter after quarter, year after year performance in those items that we control.
Sally: But as you could see with our profitability this quarter, for the first half, even our profit margin expansion in new equipment, despite being down several hundred million dollars of revenue.
Sally: You're seeing the resilience in not just our service-driven model, but I think you're seeing, again, sustained quarter after quarter, year after year performance in those items that we control.
Jeffrey Todd Sprague: Great. Thank you for all that color. I appreciate it. I'll pass the baton.
Speaker Change: Great. Thank you for all that color. Appreciate it. I'll pass the baton.
Operator: Your next question comes from the line of Nigel Coe with Wolf Research. Your line is open.
Speaker Change: Your next question comes from the line of Nigel Coe with Wolf Research. Your line is open.
Nigel Edward Coe: Thanks. Good morning. Anurag, you've been missed, but again, I'm pretty sure you're going to pop up somewhere soon. Christina, congratulations on the promotion.
Nigel Edward Coe: Thanks. Good morning. And Anurag, you've been missed, but again, I'm pretty sure you're going to pop up somewhere soon. Christina, congratulations on the promotion.
Judith F. Marks: So I just want to pick up the baton on the China question. I'm just wondering, is there any change in your strategy, which has been clearly focused on gaining share, and is there now more of a focus on preserving margin there? I'm just curious about the NCI expense being flat at $100 million. That seems to indicate that China EBIT is actually holding up rather well. So just curious if there's a change in strategy and that comment on margin.
Douglas Goldstein: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show. He is a licensed financial professional both in the U.S. and Israel. Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services LLC. Member NYSE & SIPC, a Fidelity Investments company. His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered at www.profile-financial.com. All information on this website is purely information and should not be used as the sole basis for making financial decisions. The opinions rendered herein are those of the guests, and not necessarily those of Douglas Goldstein, Profile Investment Services, Ltd., or Israel National News.
Douglas Goldstein: Any change in your strategy which has been clearly focused on
Speaker Change: You know, gaining a share, and is there now more of a focus on preserving margin there?
Speaker Change: I'm just curious on the NCI, you know, kind of expense being flat at $100 million. That seems to indicate that China EBIT is actually holding up rather well. So just curious if there's a change in strategy and that comment on margins.
Judith F. Marks: Yeah, let me take the first one, and I'll turn it over to Anurag, although we're kind of fighting over the second one because we both want to answer it. So, Nigel, there's no change in strategy. What you're probably not seeing behind the scenes is how our team has, again, continued to pivot. We continue to do product introductions, and we continue to drive delivery in terms of our orders through our agents and distributors. Our agents and distributors, again, think about 2,400 of them. A lot of them have also taken on modernization as well.
Speaker Change: Yeah, let me take the first one and I'll turn it over to Anurag, although we're kind of fighting over the second one because we both want to answer it. So, Nigel, it's no change in strategy.
Speaker Change: What you what you're probably not seeing behind the scenes is how our team has again continued to pivot. We continue to do product introductions.
Anurag: and we continue to drive delivery in terms of our orders through our agents and distributors.
Anurag: Our agents and distributors, again think about 2,400 of them, a lot of them have also taken on modernization as well.
Judith F. Marks: So we've expanded their remit so that we continue to, you know, prepare for the future, which is going to be a more mod-heavy future regardless of what happens structurally on the new equipment side. So the strategy is on track. We know what we're doing there. We talk about, you know, we've had significant Chinese share gains since the spin-off, but we're not going to take on loss-making units for the sake of share gains.
Anurag: So, we've expanded their remit so that we continue to, you know, prepare for the future, which is going to be a more mod-heavy future, regardless of what happens structurally on the new equipment side. So, the strategy's, it's on track.
Anurag: We know what we're doing there. We talk about, you know, we've had significant China share gains since SPIN.
Judith F. Marks: And that's something I've been telling you now, quarter after quarter, and we're going to be consistent with that methodology versus, you know, giving up price and then having that negative piece in the backlog. We just don't think that's – we don't need that for our business, and we don't think it's wise. But Anurag, let me touch on the second half.
Anurag: But we're not going to take on loss-making units for the sake of share gains. And that's something I've been telling you now quarter after quarter.
Anurag: and we're going to be consistent with that methodology versus...
Anurag: You know, giving up price and then having that negative piece in the backlog. We just don't think that's, we don't need that for our business, and we don't think it's wise. But Anurag, let me let you touch on the second half.
Anurag Maheshwari: Thanks Judy. So, Nigel, if you look at the new equipment market in China, it is clearly challenging, and the revenue in the second quarter was down as well, double digits, as we said. Okay, the reason you don't see on the NCI line is because we're able to manage the volume headwind through productivity, through growing our service business, and it's not only all across all the other regions, it's also in China as well. So, we do what
Anurag: Thanks Judy. So, Nigel, if you look at the new equipment market in China, it is clearly challenging and the revenue in the second quarter was down as well, double digit as we said.
Anurag: Okay, the reason you don't see on the NCI line is because we're able to manage the volume headwind through productivity, through growing our service business, and it's not only all across all the other regions, it's also in China as well.
Anurag: So, we do what we can control, so from a margin perspective and profit perspective, we've been able to preserve it.
Anurag Maheshwari: The last thing I'll add on NCI is our Middle East business has picked up at a very good pace. It's one of several highlights for EMEA, and you see EMEA orders are up, EMEA is strong in revenue, and EMEA is a large modernization opportunity for us, including the Middle East. Outside of China, the majority of our remaining NCI is in the Middle East.
Anurag: And the last thing I'll add on NCI is our Middle East business has picked up at a very good pace. It's one of several highlights for EMEA, and you see EMEA orders are up, EMEA is strong in revenue, and EMEA is a large modernization opportunity for us, including the Middle East.
Nigel Edward Coe: Outside of China, the majority of our remaining NCI is in the Middle East, Nigel.
Nigel Edward Coe: Okay, that's great. Thanks. That's great, Kala. And then one quick one for Anurag. I want to make sure that he works before he leaves.
Anurag Maheshwari: So the free cash flow clipped down to $1.5 billion. Is that really a function of the new equipment weakness we're seeing? And therefore, we're seeing kind of a headwind on advanced payables, advanced deposits from customers? Is that really what's happening here? Or is there something else we need to... Thank you.
Nigel Edward Coe: Okay, that's great. Thanks. That's great color. And then one quick one for Anurag. I want to make sure that he works before he leaves.
Speaker Change: So the free cash flow clip down to 1.5, 1.6, is that a function really of the new equipment weakness we're seeing and therefore we're seeing, you know, kind of a headwind on advanced payable, advanced deposits from customers? Is that really what's happening here or is there something else we need to consider?
Anurag Maheshwari: Thanks, I think you understand pretty well, but let me give you a little bit more color, right? In the first half, we built about $300 million of working capital, and primarily due to two reasons. The first reason, which you mentioned, is that on new equipment autos, we typically receive down payments, and that auto environment has obviously been challenging for the firm. But the second, which I think is the largest driver, is that the service business grew faster than the new equipment business, and we tend to be cash ahead in new equipment while we collect in service after we perform the work.
Speaker Change: Thanks, I think you got it pretty much, but let me give a little bit more color, right? In the first half, we built about $300 million of working capital, and primarily due to two reasons. The first reason, what you mentioned, you know, on new equipment autos, we typically receive down payments, and that auto environment has obviously been challenging for the first half.
Anurag Maheshwari: So these two are the drivers that got us to build $300 million of working capital. So for the back half of the year, you know, we expect to generate about $825 million in gap net income. And if we reverse about $200 million or more in working capital, that will get us closer to the $1.6 billion. You know, we will, of course, look to do better, like the way we did in the second half of last year, and especially in receivables. And if the new equipment orders do a little bit better than expected, then this could be a source of upside, and we could get us to about $1.6 billion.
Speaker Change: But second, which I think is the largest driver, is that the service business grew faster than the new equipment business, and we tend to be cash ahead in new equipment while we collect and service after we perform the work.
Speaker Change: So these two are the drivers which got us to build $300 million of working capital. So for the back half of the year, you know, we expect to generate about $825 million in gap net income. And if we reverse about $200 million or more in working capital, that will get us closer to the $1.6 billion.
Speaker Change: You know, we, of course, will look to do better, like the same way as we did in the second half of last year, and especially in receivables, and if the new equipment orders do a little bit better than expected, then this could be a source of upside and we could get us to about $1.6 billion of free cash.
Operator: Your next question comes from the line of Julian Mitchell with Barclays. Your line is open.
Speaker Change: That's great, thank you.
Speaker Change: Your next question comes from the line of Julian Mitchell with Barclays. Your line is open.
Julian C.H. Mitchell: Hi, good morning, and congratulations to Anurag and Christina. Maybe just my first question is really on that new equipment organic sales outlook, sort of globally and then more with a focus on the Americas, I suppose, not so much China. So the backlog, I think, was down 3% year on year. In June, your sales are down, I think, in the back half of new equipment, mid-single digit. But I wondered kind of how much of a lead time now we're getting from that backlog into your revenues for 2025.
Julian C.H. Mitchell: Hi, good morning and congratulations to Anurag and Christina. Maybe just my first question is really on that new equipment, organic sales outlook sort of globally and then more with a focus on the Americas, I suppose, not so much China.
Speaker Change: Backlog, I think, was down 3% year-on-year. In June , your sales are down, I think, in the back half in new equipment, mid-single digits.
Speaker Change: But I wondered kind of how much of a lead time now we're getting from that backlog into your revenues for 2025. You know, if I look at the Americas, for example, your TTM orders were down mid-teens.
Julian C.H. Mitchell: You know, if I look at the Americas, for example, your TTM orders were down mid-teens in new equipment, but you're still guiding revenue this year up mid-single. So in something like the Americas, does the confluence of those two things mean 25 sales in new equipment are almost certainly down a reasonable amount, and then any sort of broader global color on that?
Speaker Change: in new equipment but you're still guiding revenue this year up mid-single.
Speaker Change: So in something like the Americas, does the confluence of those two things mean 25 sales in new equipment are almost certainly down a reasonable amount, and then any sort of broader global color on that?
Anurag Maheshwari: Sure Julian, I think it's a great question and it's the right analysis. Let me first give you an overview of new equipment backlog around the globe and then let me specifically dive into the Americas. We were down 3% and our 12-month rolling new equipment orders are obviously down 7.7%. The Americas backlog, though, is up low single-digit. EMEA is up low single-digit. Asia-Pacific is up mid-teens.
Speaker Change: Sure, Julian, I think it's a great question and it's the right analysis.
Speaker Change: Let me first give you an overview of New Equipment Backlog around the globe, and then let me specifically dive into the Americas.
Speaker Change: We were down 3%.
Speaker Change: and our 12-month rolling new equipment orders are obviously down 7.7 percent.
Speaker Change: The America's Backlog, though, is up low single-digit, EMEA is up low single-digit.
Speaker Change: Asia Pak is up mid-teens, and China is down, obviously, which is driving Asia down for the broader picture.
Anurag Maheshwari: And China is down, obviously, which is driving Asia down for the broader picture. Our new equipment outlook right now is for exit 2024 at the company level flattish to slightly down. As we expect, backlog could fall in the second half, but it's really going to get defined by the new equipment orders for the second half. And our line of sight to second-half orders looks strong, especially in the Americas and some other regions. And let me just tell you, we have about an 18-month line of sight to the Americas, the majority of it being North America, in terms of meeting our backlog.
Speaker Change: Our new equipment outlook right now is to exit 2024 at the company level, flattish to slightly down. As we expect, backlog could fall in the second half, but it's really going to get defined by the new equipment second half orders.
Speaker Change: and our line-of-sight to second-half orders.
Speaker Change: look strong, especially in the Americas and some other region. And let me just tell you, we have about an 18-month line of sight.
Speaker Change: to the Americas, the majority of it being North America, in terms of performing our backlog. And as I said, the Americas backlog is up low single digit. The new equipment sales in the Americas came in as expected in the second quarter.
Anurag Maheshwari: And as I said, the Americas backlog is up low single-digit. The new equipment, a low single-digit, year-on-year comp, as well as major projects. We anticipate that picking up in the second half. We also anticipate new equipment orders in the second half for the Americas to be positive. We can see that based on proposal activity, we can see that based on awards we have that haven't yet been booked, and we believe you'll see that starting to come through in the third.
Speaker Change: A low single-digit, year-on-year comps, as well as major projects. We anticipate that picking up in the second half.
Speaker Change: We also anticipate the new equipment orders in the second half for the Americas to be positive. We can see that based on proposal activity. We can see that based on awards we have that haven't yet been booked, and we believe you'll see that starting to come through in the third quarter.
Anurag Maheshwari: That's very helpful. Thank you.
Anurag Maheshwari: And then, just maybe, a more sort of near-term, fiddly question, just maybe for Anurag, as we think about that second half. Do we just assume kind of sequentially EPS is down? Both quarters, Q3 and for to a similar degree. Any sort of color on that, second half? So I'll just start off with the first half and second half, and Christina can give more color on Q3 as well. So we've done about $1.94 of EPS in the first half, and the midpoint of the guide is $3.88, so that implies another $1.94.
Speaker Change: That's very helpful, thank you. And then just maybe a more sort of near-term fiddly question, just maybe for Anurag, as we think about that second half.
Speaker Change: Outlook. Do we just assume kind of sequentially EPS is down both quarters Q3 and
Speaker Change: Q4, to a similar degree, any sort of color on that.
Anurag Maheshwari: So I'll just start off with the first half and second half, and Christina can give more color on Q3 as well. So we had about $1.94 of EPS in the first half. And the midpoint of the guide is $3.88, which implies another $1.94 in the second half, right? So, from an operational perspective, it's equal between the first half and the second. Christina, I'll give you a little bit more color in Q3. Yeah, thank you.
Anurag: and the second half-inch-and-a-quarter split.
Speaker Change: So I'll just start off with the first half, second half, and Christina can give more color on Q3 as well. So we've done about $1.94 of EPS in the first half.
Speaker Change: and the midpoint of the guide is $3.88, which implies another $1.94 in the second half. So, from an operational perspective, it's equal between the first half and the second half.
Speaker Change: Kristina, I'm going to give a little bit more color on you.
Kristina: Thank you, Anurag. Happy to give you some color on Q3. So with interest expenses at the current run rate and tax rate growing to 27% in Q3, we would expect roughly EPS flat in the quarter. That would mean that for the year EPS will go up 34 cents.
Kristina: That is the midpoint of the guide, and that means 22 cents up in the first half, probably flat in Q3, and just over a dime in Q4.
Christina Mendez: That's great. Thank you.
Judith F. Marks: Yeah, and Julian, let me just correct myself quickly. The backlog total ex-China is up a low single digit, but America's backlog is down. Thank you.
Julian C.H. Mitchell: Yeah, and Julian.
Speaker Change: That's great. Thank you.
Speaker Change: Yeah and Julian let me let me just correct myself quickly. The backlog total ex-China is up low single-digit but the America's backlog is down.
Operator: Your next question comes from the line of Steve Tusa with J.P. Morgan. Your line is open.
Speaker Change: Got it. Thank you.
Speaker Change: Your next question comes from the line of Steve Tusa with JP Morgan. Your line is open.
Charles Stephen Tusa: Hey, good morning.
Charles Stephen Tusa: Again, Anurag, thanks for all the help and congratulations on all the promotions there to everybody. Just a question about China. What are you guys seeing price-wise there, and at what stage does that start to impact backlog margin? And then is there any risk that that market gets to the point where it starts impacting services growth? You know, basically just your pipeline there of installs that then come off warranty a couple years later start to be a headwind to services growth. I know it's still a small part of the global portion, but just those two questions, price and margin, and then when it starts to impact services growth.
Steve: Hi Steve.
Charles Stephen Tusa: Again, Anurag, thanks for all the help and congrats on all the promotions there to everybody. Just a question on China. What are you guys seeing?
Charles Stephen Tusa: price-wise there and at what stage does that start to impact backlog margin and then is there any risk that that market gets
Speaker Change: to the point where it starts impacting services growth is...
Speaker Change: You know, you, you know, basically just your, your pipeline there of installs that then come off warranty a couple years later, um, start to be a headwind to, uh...
Speaker Change: to services growth? I know it's still a small part of the global portion, but just those two questions, price and margins, and then when it starts to impact services growth.
Judith F. Marks: Yeah, well, let me take price and when it impacts services, and I'll let Anurag comment on margins. It is a very competitive environment in China. Pricing is challenged and is down, I would say, roughly 10%. However, costs are coming down. So again, in a deflationary environment, whether it's commodities, whether it's the productivity that we're doing, we're pulling costs out, we've got tailwinds on commodities, and we're driving productivity. So we'll continue to monitor that, Steve.
Speaker Change: Yeah, well, let me take price and when it impacts services, and I'll let Anurag comment on margins. It is a very competitive environment in China. Pricing is is challenged and is down, I would say, roughly roughly 10%.
Anurag: But the costs were coming down. So, again, in a deflationary environment, whether it's commodities, whether it's the productivity that we're doing, we're pulling costs out, we've got tailwinds on commodities, and we're driving productivity.
Judith F. Marks: I think we are seeing, and we've been saying it's competitive there now for three years on pricing. I don't anticipate that changing, but our team continues to respond well on the cost side. In terms of how that converts, when you look at our service portfolio in China, again, a lot of that's conversion, and our conversion rates are doing well in China. We're pleased with that continuing to move up as we've set in our medium-term guide.
Charles Stephen Tusa: So, we'll continue to monitor that, Steve, I think we are seeing, we've been saying it's competitive there now for three years on pricing, I don't anticipate that changing, but our team continues to respond well on the cost side.
Speaker Change: In terms of how that converts, when you look at our service portfolio in China, again we're now, we said last quarter we were over 400,000 units, we're now at about 415,000 units, growing nicely.
Speaker Change: A lot of that's conversion, and our conversion rates are doing well in China. We're pleased with that continuing to move up as we've set in our medium-term guide. But part of that's also recapturing and adding on non-OTIS units.
Judith F. Marks: But part of that's also recapturing and adding on non-OTIS units. So at 425,000 units, we've got a little 4% market share. So there's ample opportunity for us to bring non-OTIS units and OTIS units that aren't under our portfolio back. So all those activities are gonna happen simultaneously. And we believe we can continue mid-teens to high-teens growth in our China portfolio for the medium term. So we don't believe that's going to roll into a service impact for us. Anurag? Thanks.
Speaker Change: So at 425,000 units, we've got a 4% market share, so there's ample opportunity for us to bring non-OTIS units and OTIS units that aren't under our portfolio back.
Speaker Change: So, all those activities are going to happen simultaneously, and we believe we can continue mid-teens to high-teens growth in China portfolio for the medium term. So, I don't, we don't believe that's going to roll into a service impact for us. Anurag?
Anurag Maheshwari: Thanks so you know as Judy mentioned right so one of the biggest drivers for us is going to be on the margin side volume for sure on service if you look at the market over the past three years it's been down but the reason our portfolio grew is because of a conversion rates improving and there's still more to come on the conversion rates as it goes around so I think we feel fairly confident on the volume growth over there. On the cost side clearly you know you know the earlier question that Nigel asked as well the reason why the NCI was where it was is because of the are we able to maintain our profitability is looking at a cost piece.
Anurag: As Judy mentioned, one of the biggest drivers for us is going to be on the margin side volume for sure on service. If you look at the market over the past three years, it's been down, but the reason our portfolio grew is because of conversion rates improving, and there's still more to come on the conversion rates as it goes along. So I think we feel fairly confident on the volume growth over there. On the cost side, clearly the earlier question that Nigel asked as well, the reason why the NCI was where it was is because of how we're able to maintain our profitability is looking at a cost piece.
Anurag Maheshwari: One is we are fortunate in China to be in a deflationary economy in terms of supply chain so that helps us but also we've looked at the footprint that we have both in terms of the branches in terms of facilities and we're going to take a look at it to kind of bring the cost down so we feel a combination of volume and productivity and on the cost side will help us keep the margins or if maybe expand the margins going forward. Great.
Anurag: We're fortunate in China to be in a deflationary economy in terms of supply chain, so that helps us, but also we've looked at the footprint that we have, both in terms of the branches and in terms of facilities, and we're going to need to take a look at it to kind of bring the cost down.
Anurag: So we feel a combination of volume and productivity and on the cost side will help us keep the margins or maybe expand the margins going forward.
Operator: Your next question comes from the line of Joe O'Day with Wells Fargo. Your line is open.
Speaker Change: Great. Thanks a lot.
Speaker Change: Your next question comes from the line of Joe O'Day with Wells Fargo. Your line is open.
Joe O'Day: I wanted to ask about the modernization backlog and if you could talk about the pricing within that backlog and what kind of line of sight you have to continued margin expansion in MAUD and any quantification of that that we could see over the next few quarters.
Joe O'Day: Hi, good morning.
Joe O'Day: I wanted to ask about the modernization backlog and if you could talk about the pricing within that backlog and what kind of line of sight you have to continue margin expansion in MOD and any quantification of that that we could see over the next few quarters.
Judith F. Marks: Yeah, Joe, listen. We added delivering modernization value as a fifth strategic imperative last year to really mobilize the company to industrialize how we're doing mod and to take us from a position where mod margins were below new equipment to a place where not only would they meet new equipment margins but exceed them. We did that last quarter and first quarter; we've repeated that this quarter with our medium-term guide to get mod margins up to at least double-digit and 10%, you know, as a starting point.
Speaker Change: Yeah, Joe, listen, we added, you know, delivering modernization value as a fifth strategic imperative last year.
Speaker Change: to really mobilize the company, to industrialize how we're doing mod, and to take us from a position that you know where mod margins were below new equipment.
Speaker Change: to a place where not only would they meet new equipment margins, but exceed them. We did that last quarter and first quarter. We've repeated that this quarter with our medium-term guide to get mob margins up to at least double-digit.
Judith F. Marks: We are on that trajectory; I'm pleased with that progress. The orders for mod continue to do well, our company is responding very well, and we're putting together the right kits to meet the customer needs as the demand signal is growing significantly. What we need to do is take those orders and that backlog, which is up 17%, and the orders were up 13.8% with growth in all regions, and we need to, while we're continuing to grow orders, we need to grow our conversion to sales through modernization.
Speaker Change: and 10%, you know, as a starting point. We are on that trajectory. I'm pleased with that progress.
Speaker Change: The orders for MOD continue to do well. Our company is responding very well. We're putting together the right kits to meet the customer needs.
Speaker Change: As the demand signal is growing significantly, what we need to do is take those orders and that backlog, which is up 17%, and the orders were up 13.8% with growth in all regions.
Speaker Change: And we need to, while we're continuing to grow orders, we need to grow our conversion to sales.
Judith F. Marks: And we need to pick up that pace with installers; we need to pick up that pace with the kits now being supplied from our new industrialized processes. Early days there, but you're going to continue to see that. So mod margins are heading in the right direction on the trajectory we had shared, and we continue to see the mod strategy is intact, and you're going to continue to see significant modernization growth quarter after quarter, and I believe year after year as we go through the medium-term and beyond.
Speaker Change: in Modernization.
Speaker Change: and we need to pick up that pace.
Speaker Change: with installers, we need to pick up that pace with the kits now being supplied from our new industrialized processes. It's early days there, but you're going to continue to see that. So mod margins heading in the right direction on the trajectory we had shared.
Speaker Change: and we continue to see the MOD strategy is intact and you're going to continue to see significant modernization growth quarter after quarter and I believe year after year as we go through the medium term and beyond.
Judith F. Marks: And then can you just talk to China, kind of a cycle perspective when you talk about a market of 425-450,000 units and down for a few years now, you know, just kind of any indications you see around where that can go, how you get comfortable with, at least at a volume level, the market doesn't get much worse.
Speaker Change: And then, can you just talk to China, kind of cycle perspective, when you talk about a market 425,000, 450,000 units and down for a few years now, you know, just kind of any indications you see around where that can go, how you get comfortable with, at least at a volume level, market doesn't get much worse?
Judith F. Marks: Yes, so again, it's been three straight years. We peaked at about 650,000 units a year, and now we're guiding to 425,000 to 450,000 units for this year, which is a pretty significant drop. And yet, if you look at our team's profitability across these three years and the return from our China team, I couldn't be more proud of how they've taken costs out. They're continuing to look at areas of uplift, structural facilities, branch structure, and organization, as Anurag alluded to. So we've dealt with that well while simultaneously growing our service. So you're going to see more and more services there over time. Listen, I can't and won't call her a bottom.
Speaker Change: Yes, so, again, it's been three straight years. We peaked at about 650,000 units a year, and now we're guiding to 425,000 to 450,000 for this year, which is a pretty significant drop.
Speaker Change: And yet, if you look at our team's profitability across these three years and the return from our China team, I couldn't be more proud of how they've taken cost out, they're continuing to look at areas, uplift, structural.
Speaker Change: Facilities, Branch Structure, Organization, as Anurag alluded to. So we've dealt with that well while simultaneously growing our service business.
Speaker Change: So you're going to see more and more service there over time.
Judith F. Marks: I don't know what that is. The Chinese government has put into play many simultaneous activities to try to stimulate both local government financing, as recent as the third plenary, as well as the PBOC's reduced rates this week. There are multiple activities.
Speaker Change: Listen, I can't and won't call a bottom, I don't know what that is. The Chinese government has put into play many simultaneous activities to try to stimulate
Speaker Change: both local government financing as recent as the third plenary as well as the PBOC reduced rates this week. There are multiple activities. To date we have not seen that change consumer sentiment or the buying sentiment in in properties yet.
Judith F. Marks: To date, we have not seen that change consumer sentiment or the buying sentiment for properties yet. There is still a demand for hundreds of millions of Chinese residents to move from rural to urban. So we don't believe that will change.
Speaker Change: There is still a demand for hundreds of millions of Chinese residents to move from rural to urban.
Judith F. Marks: That's the plan and the path that the Chinese government has been on now for two decades, and we believe that's going to continue. And we think we've got the right strategy and we've sized the business and moved more to service and modernization to be able to handle that. I will share, Joe. Earlier this week, we actually hosted Premier Li at one of our facilities in Tita, in the Tianjin region. It was a proud moment for us to host the Premier.
Speaker Change: So we don't believe that will change, that's the plan and the path that the Chinese government has been on now for two decades, and we believe that's going to continue. And we think we've got the right strategy and we've sized the business.
Speaker Change: and moved more to service and modernization to be able to handle that.
Speaker Change: I will share, Joe, we, earlier this week, we actually hosted Premier Li at one of our facilities in Tita, in the Tianjin region. It was a proud moment for us.
Judith F. Marks: And what we focused on, as you can imagine, was beyond all of the automation we have and how Otis has been a part of China and will be celebrating 40 years there this fall. We did focus on urban renewal and modernization and our ability to continue to drive energy efficient solutions, especially as China modernizes. Ten million units in the installed base in China are now aging, and it's going to create a significant modernization demand that we are preparing for, and I would tell you we're ready for now.
Speaker Change: to host the premier. And what we focused on, as you can imagine, was beyond all of the automation we have and how Otis has been a part of China and will be celebrating 40 years there this fall.
Speaker Change: We did focus on urban renewal and modernization and our ability to continue to drive energy-efficient solutions, especially as China modernizes.
Speaker Change: 10 million units in the install base in China that are now aging and it's going to create a significant modernization demand that we are preparing for and I would tell you we're ready for now.
Operator: That's a great color. Thank you. Your next question comes from the line of Rob Wertheimer with Melius Research.
Robert Cameron Wertheimer: Your next question comes from the line of Rob Wertheimer with Melius Research. Your line is open. Good morning, everybody. This is Jeff.
Speaker Change: That's great color. Thank you.
Speaker Change: Your next question comes from the line of Rob Wertheimer with Melius Research. Your line is open.
Robert Cameron Wertheimer: Your line is open. Good morning, everybody. This is Justin Pellegrino on behalf of Rob, and congratulations.
Speaker Change: Good morning, everybody. This is Justin Pellegrino on to Rob, and congratulations to Christine and Anurag again.
Justin Pellegrino: Our question is kind of around mods as well, and there's been continued impressive growth.
Justin Pellegrino: Can you just put that in context of sales effort? Is that more outreach? And I know, Judy, you touched on looking for better conversions. Is it more market awareness of the product? Can you just tell us what's kind of driving that impressive growth? Thanks.
Judith F. Marks: Yeah, I mean, one of the clear areas, Justin, is just literally aging equipment and obsolescence and demand. I mean, of the 20-plus million, 22 million units in the installed base, over 7 million are, you know, 20-plus years older, and many of those are 30-plus years older.
Justin Pellegrino: Yeah, I mean, one of the clear areas, Justin, is just literally aging equipment and obsolescence and demand.
Speaker Change: I mean, of the 20 plus million, 22 million units in the install base, over 7 million.
Speaker Change: are, you know, 20-plus years older and many of those 30-plus years older.
Judith F. Marks: The largest market for that right now is in EMEA, and we're excited with our offerings there. What makes this different now is we're getting away from custom mod and bespoke mod and industrializing this. And when we introduced our Gen 3 product to the market a year or two ago, we did it with the vision that we would have that offering modular, available across the globe, a connected offering that would not just fulfill new equipment drives, whether it's Gen 360 in EMEA and now China, but Gen 3 globally that we could then also package as a modernization opportunity.
Speaker Change: The largest market for that right now is in EMEA and we're excited with our offerings there.
Speaker Change: What makes this different now is we're getting away from custom mod and bespoke mod and industrializing this.
Speaker Change: And when we introduced our Gen 3 product to the market a year or two ago, we did it with the vision that we would have that offering modular,
Speaker Change: available across the globe, a connected offering that would not just fulfill new equipment drives, whether it's Gen 360 in EMEA and now China, but Gen 3 globally that we could then also package as a modernization opportunity.
Judith F. Marks: So as we bring out these products, the beauty of it is, as we're educating the new equipment sales team, we're educating the mod sales team. And as our installation crews from new equipment are more familiar with Gen 3, now they're doing Gen 3 mod. So we're attacking every part of this while attacking the cost side, because now we're buying Gen 3 at scale from our subsuppliers and the manufacturing elements we do ourselves. And all of it's coming together nicely, which is driving the margins.
Speaker Change: So, as we brought out these products, the beauty of it is, as we're educating the new equipment sales team, we're educating the mod sales team.
Speaker Change: And as our installation crews from New Equipment are more familiar with Gen 3, now they're doing Gen 3 Mod.
Speaker Change: So, we're attacking every part of this while attacking the cost side, because now we're buying Gen 3 at scale from our sub-suppliers and the manufacturing elements we do ourselves, and all of it's coming together nicely, which is driving the margins. But from a sales standpoint, we've simplified it.
Judith F. Marks: But from a sales standpoint, we've simplified it. We have these relationships with customers. Think about our service portfolio, at 2.3 million units, just in our portfolio. We have relationships with these service customers every day. Those are our mod customers. And when we go to the portfolio, most of that work we can talk about, we can help them capital plan, we can create if there's obsolescence. We can be more; it can be more proactive than reactive.
Speaker Change: We have these relationships with customers. Think about our service portfolio at 2.3 million units just on our portfolio.
Speaker Change: We have relationships with these service customers every day. Those are our mod customers. And when we go on portfolio, most of that work we can talk about, we can help them capital plan, we can create if there's obsolescence, we can be more...
Judith F. Marks: All of that is coming together at a time when demand is growing. So we're ready for this, and I think you're seeing, I know you're seeing those results in MAUD, and you're going to continue to see them.
Speaker Change: It can be more proactive than reactive.
Speaker Change: and all of that is coming together at a time when the demand is growing. So we're ready for this and I think you're seeing, I know you're seeing those results in MAUD and you're going to continue to see them.
Operator: Your next question comes from the line of Nick Houston with RBC Capital Markets. Your line is open.
Speaker Change: Wonderful, thank you.
Speaker Change: Your next question comes from the line of Nick Housden with RBC Capital Markets. Your line is open.
Nicholas Housden: Hi Julian, Anurag, Christina. Yeah, thanks for taking the time to answer the question. I'd like to ask about the maintenance and repair business. So the 4.9% organic growth is not a bad number overall, but it does look like the slowest growth in quite a few quarters. So I'm just wondering if you can maybe provide some color about what's going on there and, you know, whether it's maybe some of the above-trend growth that we've been seeing in the repair business coming off. Thanks.
Nicholas Housden: Hi, Judy, Anurag, Christina.
Nicholas Housden: Yeah, thanks for taking the question. I'd like to ask about...
Nicholas Housden: The maintenance and repair business, so the 4.9% organic growth. I mean, it's not a bad number overall, but it does look like the slowest growth in quite a few quarters.
Nicholas Housden: So I'm just wondering if you can maybe provide some color about what's going on there and whether it's maybe some of the above-trend growth that we've been seeing in the repair business coming off.
Judith F. Marks: Yeah, I think you have somewhat answered it, Nick. We have been seeing double-digit repair business for three years. Originally, it was the post-COVID snapback, but then we've just seen really healthy repair growth. We believe that growth is going to pick up again in the second half of the year. So, you know, it's not lumpy, but on occasion, again, we've guided in the past that as maintenance grows, you should think of repair growth as one point higher than the overall rate. That would say, as our portfolio grows 4 plus percent, repair should grow 5 plus percent. We've been exceeding 10 percent now for almost three years in repairs. So I think it's fair to think a little high single digit more for the second half. And that's a fair expectation.
Speaker Change: Yeah, I think you somewhat answered it, Nick. We have been seeing double-digit repair business now for three years.
Speaker Change: Originally, it was the post-COVID snapback, but then we've just seen really healthy repair growth.
Speaker Change: We believe that growth is going to grow again in the second quarter, in the second half of the year. So, you know, it's not lumpy, but on occasion, again, we've guided in the past that as maintenance grows, you should think of repair growth as one point higher than that.
Speaker Change: That would say, as our portfolio grows 4 plus percent, repair should grow 5 plus percent.
Speaker Change: We've been exceeding 10% now for almost three years in repairs. So I think it's fair to think a little high single-digit more for the second half and that's a fair expectation.
Anurag Maheshwari: The only thing, just one thing if I could just add to that is, if you look at the comp from last year, where the second quarter was the highest in terms of repair growth, the repair, as Judy has mentioned, is still growing at a very good single-digit, if not double-digit rate in the back half. Great. Thank you. I think you mentioned a 10% lower price. China and, year-over-year. Is that a like-for-like comment, or is that just the price?
Speaker Change: Great. Yeah, the only thing I'm, just one thing if I could just add to that is, if you look at, it's a comp from last year, where the second quarter was the highest in terms of repair growth. But repair, as Judy's mentioned, is still growing at very good i single digit, if not double digit in the back half of the year.
Speaker Change: Okay, great.
Judy: Judy, I think you mentioned 10% lower prices in China, I'm guessing year over year. Is that a like for like comment, or is that price and mix? Because I think the 10% number is similar to what one of the competitors said.
Nicholas Housden: Yeah, it's here every year, and it's like for like.
Judith F. Marks: Okay, great. Thank you very much.
Speaker Change: that's just called out recently.
Judy: Yeah, it's year over year and it's like for like.
Operator: Your next question comes from the line of Gautam Khanna with T.D. Cohen. Your line is open.
Speaker Change: Okay, great. Thank you very much.
Speaker Change: Your next question comes from the line of Gautam Khanna with TD Cohen. Your line is open.
Gautam J. Khanna: Hi guys, how's it going? This is Jack Ayres on for Gotham today, and Anurag, and Christina. Yeah, congratulations to everyone on the transitions here. It's been a pleasure working with you, Anurag.
Speaker Change: Hi guys, how's it going? This is Jack Arizona for Gotham Today.
Jack Arizon: and Anurag. And Christina, yeah, congrats everyone on the transitions here.
Judith F. Marks: So a quick question, just Judy, if you could maybe square up on some of the new equipment order trends, you know, just by geography. I totally understand China and America's weakness, but it looks pretty good in EMEA and Asia-Pacific, ex-China. So maybe if you could maybe just square us, you know, just the divergence there. And then back to the pricing comment, I guess that 10% down, like for like, is that just kind of like organic pricing down? Are you seeing any poor actors maybe trying to gain share or maybe just hit on the ISPs if that's kind of influencing pricing trends in China? Just any color there would be helpful. Thanks. Yeah, Jack.
Speaker Change: It's been a pleasure working with you, Anurag.
Speaker Change: So, a quick question, just Judy, if you could maybe square us on some of the new equipment order trends, you know, just by geography.
Speaker Change: I totally understand China and America weakness, but...
Speaker Change: looks pretty good in EMEA and Asia-Pacific, ex-China, so maybe if you can maybe just square us, you know, just the divergence there. And then back to the pricing comment.
Speaker Change: I guess is that 10% down, like for like, is that just kind of like organic pricing down? Are you seeing any poor actors maybe trying to gain share or maybe just hit on the ISPs?
Speaker Change: if that's kind of influencing pricing trends in China, just any color there would be helpful. Thanks.
Judith F. Marks: Yeah, Jack, on your second question, the ISPs don't play in the new equipment pricing, so we're not seeing anyone, any of the other OEMs, from what we can see in the market, operating any differently than we've seen them operate in the past. Let me give you some color, though, on EMEA and APAC, because they deserve that color. It's been really nice to see that in a challenging EMEA market, we're performing really well in terms of orders.
Speaker Change: Yeah, Jack, on your second question, the ISPs don't play in the new equipment pricing, so we're not seeing anyone, any of the other OEMs, from what we can see in the market, operating any differently than we've seen them operate in the past.
Speaker Change: Let me give you some color though on EMEA and APAC because that they deserve that color. It's been really nice to see in a challenging EMEA market we're performing really well in terms of orders.
Judith F. Marks: You know, obviously, watching interest rates and everything going on there, but for the quarter, our Central Europe business performed well, our Southern Europe business performed well, and our Middle East business performed very well. France and the UK were a little weaker, but the backlog's solid, and you've now seen, whether it's 12 months, last quarter, this quarter, our EMEA team's doing a really nice job again in a challenging market when you think about other macro trends that we don't control. In our Asia-Pacific business, in the second quarter, we saw some slowing in India, but that was because of the ongoing elections. This is going to pick up significantly for the second half of the year.
Speaker Change: You know, obviously one.
Speaker Change: watching interest rates and everything going on there. But for the quarter...
Speaker Change: Our Central Europe business performed well. Our Southern Europe business performed well.
Speaker Change: and our Middle East business has performed very well.
Speaker Change: France and UK were a little weaker, but the backlog is solid, and you've now seen, whether it's 12 months, last quarter, this quarter, our EMEA team's doing a really nice job, again in a challenging market when you think about other macro trends that we don't control.
Speaker Change: Our Asia-Pacific business in the second quarter, we saw some slowing in India but that was because of the ongoing elections. That is going to pick up significantly for the second half of the year.
Judith F. Marks: Korea, still some challenges, Taiwan a little down, but our orders were up in Japan and Australasia, and the backlog is up very healthily. So we expect America to snap back in the third quarter and second half of the year with orders. We expect continued significant orders growth in Asia-Pacific, and our EMEA team, again, whether it's by our operating units, by our sales team, major projects, volume business, our Gen 360 products are doing very well, and I'm really pleased with the infrastructure segments globally.
Speaker Change: Korea still some challenges, Taiwan a little down, but our orders were up in Japan and Australasia and the backlog is up very healthy.
Speaker Change: So, we expect America's to snap back.
Speaker Change: in third quarter and second half of the year in orders. We expect continued significant orders growth in Asia-Pacific. And our EMEA team, again, whether it's...
Speaker Change: by our operating units, by our sales team, major projects, volume business.
Speaker Change: are Gen 360 products doing very well?
Speaker Change: and I'm really pleased on the infrastructure segments globally.
Judith F. Marks: You saw the three we called out; whether it's Shanghai Metro, Stuttgart, or San Francisco, there are many more infrastructure jobs that we've been winning, and that gives us the opportunity, whether it's, you know, again, low-rise, mid-rise, high-rise, or escalators; it's our full product line, and with those infrastructure jobs, we tend to get longer service commitments as well. So all of those trends, again, America will snap back, China will remain challenged, and the other two businesses will continue to perform well as we see the second half of the year. And as I shared, I think it was, you know, one of the early questions, and maybe it was even Julian's, is this where we'll know how 25. So we'll know based on backlog how we look in 25 and 26 a little as we exit 24 based on those orders in the backlog for the second.
Gautam J. Khanna: Okay, great. Thanks, Judy. I appreciate it.
Speaker Change: You saw the three we called out, whether it's Shanghai Metro, Stuttgart, or San Francisco.
Speaker Change: there are many more infrastructure jobs that we've been winning and that gives us the opportunity whether it's you know again low-rise, mid-rise, high-rise or escalators it's our full product line and with those infrastructure jobs we tend to get longer service commitments as well.
Speaker Change: So all of those trends, again, America's will snap back.
Speaker Change: China will remain challenged, and the other two businesses will continue to perform well as we see the second half of the year. And as I shared, I think it was, you know, one of the early questions, and maybe it was even Julian's, is this is where we'll know how 25 looks.
Speaker Change: So, you know, we'll know based on backlog how we look in 25 and 26 a little as we exit 24 based on those orders in the backlog for the second half.
Speaker Change: Okay, great. Thanks, Judy. Appreciate it.
Operator: Your next question comes from the line of Miguel Borrega with BNP Pajaropa. Your line is open.
Speaker Change: You got it?
Speaker Change: Your next question comes from the line of Miguel Borrega with BNP Biharrabah. Your line is open.
Miguel Nabeiro Ensinas Serra Borrega: Hi, good morning, everyone. Thanks for taking the time to answer my questions. The first one on new equipment. Can you give us some kind of color on why the margin expanded? Spike revenues being down 9%. Is this purely on the back of a better mix with China down double digits and America up? Or is there something else within Q2 that lifted the margin? I would imagine the China margin is not up. And you mentioned new equipment pricing outside of China being low to meet single digits. Did that contribute to a higher new equipment margin outside of China?
Miguel Nabeiro Ensinas Serra Borrega: Hi, good morning everyone. Thanks for taking my questions. The first one on new equipment. Can you give us some kind of color on why the margin expanded?
Miguel Nabeiro Ensinas Serra Borrega: Despite revenues being down 9%. Is this purely on the back of a better mix, with China down double digits and America's up? Or is there was something else within Q2 that lifted the margin? I would imagine
Speaker Change: China margin is not up and you mentioned new equipment pricing outside of China being up low to meet single digits. Did that contribute to a higher new equipment margin outside of China?
Anurag Maheshwari: Hey, thanks for the question. Firstly, just to ground everyone, China's new equipment is our largest margin to set our region in order. So it's actually when China volume goes down, it's a mixed headwind. It's not a mixed tailwind where the team was able to offset the mix, which is actually quite substantial for the quarter because if you look at revenue down a couple of hundred million dollars and that to essentially in China and the new equipment side, that causes about a 40-50 million dollar headwind.
Speaker Change: Hey, thanks for the question. So, firstly, just to ground everyone, China New Equipment is our largest margin region in OTIS. So, it's actually, when China volume goes down, it's a mixed headwind for us.
Speaker Change: It's not a mixed tailwind for us.
Speaker Change: where the team was able to offset the mix, which is actually quite substantial for the quarter because if you look at a revenue down a couple of hundred million dollars and that to essentially in China on the new equipment side.
Anurag Maheshwari: We were able to offset that because of pricing and a backlog from the other regions, which was positive, commodities, productivity, and the benefits of uplift. So you know we control what we can control, and you know as we've gone through this call, you know China is an important equipment market. We all appreciate that, but I think the other regions plus productivity have been more than able to offset that, as a result of which you saw the margin. Yeah, good afternoon, Miguel.
Speaker Change: And that causes about a $40-$50 million headwind. We were able to offset that because of pricing and a backlog from the other regions, which was positive. Commodities. We were able to offset that because of pricing and a backlog from the other regions, which was positive.
Speaker Change: Productivity and the Benefits of Uplift. So, you know, we control what we can control and, you know, as we've gone through this call, you know, China is an important equipment market, we all appreciate that, but I think the other regions plus productivity have been more than able to offset that as a result of which you saw the margin expansion.
Judith F. Marks: Just one other thing I think it's important to know is that as we look at China for this year, Chinese revenue, all in, versus Otis revenue will be, you know, 15% or less. So what that says is we're going to grow organically 1% to 3% in revenue. And that means the other three regions are growing, and the denominator is growing, while China continues to obviously run into some economic headwinds, especially in Newark.
Judith F. Marks: Yeah, good afternoon, Miguel. This is Judy.
Speaker Change: Good afternoon, Miguel. This is Judy. Just one other thing I think it's important to know is that
Speaker Change: As we look at China for this year,
Miguel Nabeiro Ensinas Serra Borrega: China Revenue, All In.
Miguel Nabeiro Ensinas Serra Borrega: versus Otis revenue will be you know 15% or less.
Judith F. Marks: That's great. Thank you.
Speaker Change: So, it's continued, what that says is we're going to grow organically 1-3% in revenue.
Speaker Change: and that means the other three regions are growing while China and the denominator is growing while China continues to obviously run into some some economic headwinds especially in new equipment.
Miguel Nabeiro Ensinas Serra Borrega: And then the second one, just to understand a little bit better, the organic clothing maintenance, 4.9%, given that the portfolio growth was 4.2 percent. So aside from repairs, is there anything else that contributed to the slower growth relative to the other quarters, the 70 basis points above portfolio growth? Can you provide some color on price mix and churn and how that has changed over previous quarters? Yeah, the portfolio growth was 4.2 percent.
Speaker Change: That's great, thank you. And then, the second one, just to understand a little bit better the organic clothing maintenance, 4.9%.
Speaker Change: Given that the portfolio growth was 4.2, so aside from repairs, is there anything else that contributed to the slower growth relative to the other quarters, the 70 basis points above portfolio growth? Can you provide some color on price mix and churn, and how has that changed over previous quarters?
Anurag Maheshwari: Yeah, the portfolio growth 4.2% is consistent with previous quarters. The pricing 3.5%, adjusting from without mixed insurance, that's also pretty consistent. The reason it's a little bit on a relative level at 4.9% slower growth is because of the calm from the previous year driven by repair. So, you know, if you look at, as we go into the second half, portfolio will continue to grow at 4 plus percent, pricing looks good, repair should be back to high single-digit and double-digit, and a combination of that will get us towards the 6.5 and 7.5.
Speaker Change: Yeah, the portfolio growth 4.2% consistent previous quarters. The pricing three and a half percent adjusting from without mixed insurance, that's also pretty consistent. The reason it's a little bit on a relative level at 4.9% slower growth is because of the calm from the previous year driven by repair business.
Speaker Change: So, you know, if you look at, as we go into the second half, portfolio will continue to grow at 4 plus percent, pricing looks good, repair should be back to high single-digit, double-digit, and a combination of that will get us towards the 6.5, 7 percent.
Operator: This concludes the question and answer session. I'll turn the call over to Judy for her closing remarks.
Speaker Change: Thank you very much.
Speaker Change: This concludes the question and answer session. I'll turn the call to Judy for closing remarks.
Judith F. Marks: Thank you, Sarah. Our results in the first half reflect the strength of our service-driven business model as we remain focused on delivering value for our shareholders in the balance of 2024 and beyond. I want to once again thank Anurag and wish him well in his future endeavors, while also expressing my excitement to partner with Christina, as together we both look forward to meeting with investors and analysts in the near future. Everyone, please stay safe and well. Thank you very much.
Judy: Thank you, Sarah. Our results in the first half reflect the strength of our service-driven business model as we remain focused on delivering value for our shareholders in the balance of 2024 and beyond.
Gautam Khanna: I want to once again thank Anurag and wish him well in his future endeavors, while also expressing my excitement to partner with Christina, as together, we both look forward to meeting with investors and analysts in the near future.
Judy: I want to once again thank Anurag and wish him well in his future endeavors while also expressing my excitement to partner with Christina as together we both look forward to meeting with investors and analysts in the near future. Everyone, please stay safe and well. Thank you very much.
Unknown Executive: Everyone, please stay safe and well. Thank you very much.
Unknown Executive: This concludes today's conference call. Thank you for joining. You may now disconnect your line.
Operator: This concludes today's conference call. Thank you for joining us. You may now disconnect your lines.
Speaker Change: This concludes today's conference call. Thank you for joining. You may now disconnect your lines.
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