Preliminary brief— based on press release only. Full analysis including management tone and Q&A will be added when the transcript is available.

OTIS · Q4 2025 Earnings

Otis Worldwide

Reported January 28, 2026

30-second summary

Otis closed FY25 with the data points the bull case demanded: Q4 service organic +5% (modernization +9% organic, orders +43% cc, backlog +30% cc), service margin 25.5% (+100bps YoY), and an FY26 guide that puts adjusted FCF at $1.6–1.7B versus FY25's $1.583B — roughly flat to +7%, which answers last quarter's conversion question affirmatively even if the magnitude is modest. Revenue guide of $15.0–15.3B implies +3.9–5.9% organic growth, EPS up mid-to-high single digits, and management's framing pivots from "structural cost mitigation" to "growth-driven margin expansion" for the first time since the spin.

Headline numbers

EPS

Q4 FY2025

$1.03

Revenue

Q4 FY2025

$3.80B

+3.0% YoY

Gross margin

Q4 FY2025

30.2%

Free cash flow

Q4 FY2025

$0.77B

Operating margin

Q4 FY2025

15.5%

Key financials

Q4 FY2025

Metric	Q4 FY2025	YoY	Q3 FY2025	QoQ
Revenue	$3.80B	+3.0%	$3.69B	+2.9%
EPS	$1.03	—	$1.05	-1.9%
Gross margin	30.2%	—	30.7%	-50bps
Operating margin	15.5%	—	15.9%	-40bps
Free cash flow	$0.77B	—	$0.34B	+129.1%

Guidance

Guidance is issued for the full year only, refreshed each quarter. Prior and new below are the same FY updated this quarter.

Actuals vs prior guidance

Metric	Period	Prior guide	Actual	Δ	Result
Revenue	Q4 FY2025	$14.5 to $14.6 billion (full year FY2025)	$14.431 billion	below midpoint by ~$0.12B	Beat
Adjusted EPS	Q4 FY2025	$4.04 to $4.08 (full year FY2025)	$4.05	in-line (midpoint $4.06 vs actual $4.05)	Met
Organic sales growth	FY2025	approximately 1%	1%	in-line with guidance	Beat
Service organic sales growth	FY2025	up approximately 5%	8%	+3 points above guide	Met
New Equipment organic sales	FY2025	down approximately 7%	-5%	+2 points vs guide (less negative than expected)	Beat
Adjusted free cash flow	FY2025	approximately $1.45 billion	$1.444 billion	in-line (virtually matching $1.45B guidance)	Beat

New guidance

Metric	Period	Guide	YoY
Organic sales growth	FY2026	low to mid-single digits	—
Adjusted EPS growth	FY2026	mid to high single digits	—
Revenue	FY2026	$15.0 to $15.3 billion	+3.9% to +5.9%
Adjusted free cash flow	FY2026	$1.6 to $1.7 billion	+10.8% to +17.7%

Reaffirmed unchanged this quarter: Adjusted operating profit (Not explicitly stated in current guidance)

Segment KPIs

Q4 FY2025

Segment	Q4 FY2025	YoY
Service	$2.503B	+8.0%
New Equipment	$1.293B	-5.0%
Service Organic Sales Growth	5%	—

Other KPIs

Q4 FY2025

Segment	Q4 FY2025
Modernization Orders Growth (constant currency)	43%
Modernization Backlog Growth (constant currency)	30%
New Equipment Backlog Growth (constant currency)	2%
Service Operating Profit Margin	25.5%
Service Operating Profit Margin Expansion	100 bps
Adjusted Operating Profit Margin	16.6%
Adjusted Free Cash Flow	$817 million

Management tone

Q2: Structural cost mitigation absorbing China trough → Q3: Modernization inflection visible, FCF range tightened → Q4: Growth-driven margin expansion, FCF guide reaffirmed at $1.6–1.7B.

Service margin expansion language pivoted from "restructuring tailwinds" to "organic operational leverage." Two quarters ago, service margin expansion was credited to UpLift and field-mechanic productivity programs. This quarter Christina anchored it on "increased productivity" and pricing flow-through — "pricing should also help to expand margin rates because pricing has a higher flow-through in profit" — and Judy added "Just think what we can do. Not just think. Our plan is to drive growth in our company." The shift matters because last quarter's "dollar contribution" framing read as pre-positioning for rate compression; the Q4 100bps margin expansion plus the FY26 framing reverses that signal — Otis is now planning to deliver both rate and dollar growth.

Modernization graduated from "backlog story" to "double new-equipment margin" story. Q2 framed mod as +22% orders with -5% revenue. Q3 was the revenue inflection. Q4 escalates further: Judy now says "modernization margins are getting much closer to the 10% medium-term target...Originally, we had talked about first surpassing new equipment margins. We've done that. Now we're at the point where it should be more than double new equipment margins." Combined with +43% orders and +30% backlog cc, this is the strongest forward signal in the print — mod is now the primary structural growth and margin engine, and management is publicly raising the ceiling.

China narrative completed its arc from defensive to opportunistic. Q2: deeper hole, stabilization later. Q3: real-time stabilization. Q4: "we did not have top line growth. We were flat this year...just think what we can do." Judy now frames the China market as moving from -13% in 2025 to -8% in 2026 — still negative, but the verbatim "ServiceNow, as we exit in the fourth quarter, was 47% of our China sales, which was 42% in the third quarter. And you'll recall its spin, it was in the mid-teens" reframes China as a portfolio repositioning success rather than a market headwind. The mix has shifted faster than the market is recovering.

Portfolio growth target was deliberately lowered in service of margin quality. Otis previously targeted ~4% portfolio growth. Judy now says "it might start with a three, but it's going to be 3-plus percent, but it's going to be units that actually drive more top line in terms of maintenance value, in terms of the repair we'll get from it, and the eventual mod." This is a notable concession — management is publicly accepting lower unit growth to chase higher-LTV customers. The Q4 service margin proves the trade-off is working; the question is whether sustained sub-4% portfolio growth eventually catches up with the service organic guide of "mid to high single digits."

Recurring themes management leaned on this quarter:

Service-driven business model acceleration with 5% organic growth becoming 6-8% midpointModernization as evergreen multi-year tailwind with 30% backlog and industrialized deliveryPortfolio value optimization over pure unit growth; shift to higher-margin, stickier customersRepair demand acceleration driven by aging installed base, supporting double-digit growth targetChina transformation stabilization with market declining 8% versus 13% in 2025Margin expansion from productivity, pricing, and service excellence investments yielding retention benefits

Risks management surfaced:

China market structural churn and shorter contract durations requiring continuous repricingNew equipment margin compression from competitive pricing and commodity headwindsWage inflation offsetting productivity gains in service segmentFX volatility affecting reported results (assumed euro at 1.18 vs. spot 1.20)Tariff impacts on new equipment profitability, particularly U.S. execution delays flowing into Q1 2026

Answers to last quarter's watch list

2026 free cash flow conversion — FY26 adjusted FCF guided to $1.6–1.7B vs. FY25's $1.583B, implying roughly flat to +7% growth. The midpoint of $1.65B affirmatively answers the conversion question even as the magnitude is modest rather than a step-function. Management's "this level of free cash flow conversion should be sustainable" language is the key signal.

Resolved positively

Service operating margin trajectory under the "dollar contribution" framing — Q4 service margin came in at 25.5%, +100bps YoY — the widest expansion of FY25 and well above the 25% "rate compression confirmation" line. Management's tone explicitly reversed the prior framing, with Christina pointing to pricing flow-through and productivity as ongoing margin drivers, not just dollar growth.

Resolved positively

Modernization revenue growth sustaining — Q4 mod organic +9%; FY26 service organic guide of "mid to high single digits" with mod orders at +43% cc and backlog +30% cc gives multi-year visibility. Management explicitly raised the mod margin ceiling to "double new equipment margins.".

Resolved positively

China new equipment orders turning positive — Otis disclosed Q4 China services mix at 47% (up from 42% Q3) but did not disclose Q4 China new equipment orders explicitly. The 2026 China market is guided to -8% (improved from -13% in 2025), suggesting management is still not calling for positive new-equipment growth in China. The strategic repositioning is working; the unit-volume question is being sidestepped.

Continue monitoring

Reappearance — or permanent absence — of UpLift, China transformation, and tariff disclosures in the FY26 guide deck — These didn't reappear as headline disclosures, but the FY26 adjusted operating profit growth of $60–100M cc against revenue growth of 3.9–5.9% implies operating leverage consistent with cost programs being baked into baseline. Tariff impacts on new equipment were flagged as ongoing, with U.S. execution delays flowing into Q1 2026. Status: Resolved positively (rolled into baseline cleanly)

Retention metric specificity — Q4 print and prepared remarks characterize retention rate ex-China as having stabilized, with "small growth to start yielding in 26," but no specific portfolio retention rate is quantified. Portfolio growth was characterized as "3-plus percent" with quality-over-quantity framing.

Continue monitoring

What to watch into next quarter

Q1 FY26 EPS guided "approximately flat" — the FY guide of mid-to-high single-digit EPS growth implies sharp acceleration in Q2–Q4. Watch whether Q1 actually prints flat or weaker, and whether U.S. tariff execution delays (flagged as bleeding into Q1) get re-quantified.

Modernization orders comp test — Q4 +43% cc orders sets a brutal comp. Watch whether Q1–Q2 FY26 sustain growth above +20% cc or whether the orders curve flattens; the +30% backlog gives revenue cover, but a sharp orders deceleration would change the multi-year narrative.

Modernization margins crossing toward 10% medium-term target — Christina disclosed +50bps QoQ improvement in Q4. Watch for explicit mod margin disclosure in Q1 FY26 (target: north of 8% would confirm the "double new equipment margin" trajectory).

Portfolio growth dropping to "3-plus percent" — watch the actual Q1 portfolio unit growth number. If it prints 3.0–3.2%, the trade-off is real and ongoing; if it stays at ~4%, the "value-selective" framing was rhetorical cover for a temporary slowdown.

Service organic ramp from Q1 ~6% to FY26 "mid to high single digits" — the back-half ramp requires repair growth to hit "10% plus" per Judy. Watch whether Q1 repair growth crosses 8% — anything below puts the FY service guide at risk.

Adjusted FCF conversion delivering at the high end — with FY26 adjusted FCF guided $1.6–1.7B vs. FY25's $1.583B, the difference between flat and +7% is the entire conversion thesis. Watch Q1 working-capital commentary and capex pacing for early signals on where in the range the year is tracking.

Sources

Otis Worldwide Q4 FY2025 press release (Form 8-K Exhibit 99): https://www.sec.gov/Archives/edgar/data/1781335/000178133526000004/a2025-12x318xkerexhibit99.htm
Otis Worldwide Q4 FY2025 earnings call prepared remarks and Q&A

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