Elevator manufacturer Otis (NYSE: OTIS) reported Q3 CY2025 results beating Wall Street’s revenue expectations, with sales up 4% year on year to $3.69 billion. The company expects the full year’s revenue to be around $14.55 billion, close to analysts’ estimates. Its non-GAAP profit of $1.05 per share was 4.7% above analysts’ consensus estimates.

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StockStory’s Take

Otis’ third quarter results reflected stable performance, with revenue and profit metrics surpassing Wall Street expectations. Management highlighted continued growth in the company’s Service segment, especially from maintenance, repair, and modernization activities. CEO Judith Marks attributed the quarter’s positive momentum to a 6% increase in Service sales and a 14% rise in modernization organic sales. She pointed out that service margin expansion and ongoing investment in operational improvements contributed to both top-line and bottom-line growth. Marks noted, “Our Maintenance portfolio continued to grow 4%, and we are on track to approach 2.5 million units in our service portfolio by year-end.”

Looking ahead, Otis’ guidance is anchored by expectations for sustained growth in its Service business, offsetting continued softness in New Equipment sales. Management pointed to an accelerating modernization backlog, investments in customer retention, and pricing initiatives as key levers for profit expansion. CFO Cristina Mendez emphasized that the company is “laser-focused on growing service contribution in dollar basis” and expects ongoing productivity improvements and cost savings initiatives to drive margin gains. CEO Judith Marks acknowledged that rebuilding customer retention rates will “require sustained time to rebuild customers’ trust,” but expressed confidence in the company’s ability to expand its service portfolio and deliver stable earnings growth through its service-driven business model.

Key Insights from Management’s Remarks

Otis’ management attributed Q3’s performance to robust Service growth, a surge in modernization activity, and operational cost containment. Declines in New Equipment sales, especially in China, were partially offset by improving trends in other regions.

• Service segment outperformance: The Service business drove overall growth, with organic Service sales up 6% and maintenance portfolio units nearing 2.5 million. Modernization organic sales grew 14%, and management sees the early stages of a multiyear modernization cycle due to the aging global elevator base.

• Modernization boosting backlog: Modernization order growth accelerated to 27% year over year, and the modernization backlog rose 22%. Management believes that modernization demand, spurred by aging infrastructure and customer needs for upgraded solutions, will continue to support growth in coming quarters.

• Americas and EMEA resilience: While New Equipment sales declined overall, orders in the Americas grew for the fifth consecutive quarter and EMEA saw high-teens growth in Southern Europe and the Middle East. Management noted that improved execution at job sites, especially in the U.S., and stabilizing conditions contributed to regional strength.

• China remains challenging: New Equipment sales in China declined by about 20%, but modernization orders in China rose sharply, boosted by government bond-funded projects. Management expects ongoing volatility but highlighted improved cost management and localized product strategies as mitigating factors.

• Cost savings and productivity initiatives: The company accelerated cost-reduction efforts, particularly through its China transformation program, achieving $20 million in savings year-to-date and targeting $30 million for the full year. These savings, along with pricing discipline and operational improvements, helped offset headwinds from tariffs and labor costs.

Drivers of Future Performance

Otis expects its Service growth, modernization backlog, and operational discipline to underpin profit expansion, even as New Equipment sales remain under pressure.

• Service portfolio expansion: Management believes that ongoing investments in customer retention, field mechanics, and digital solutions will support mid-single-digit growth in maintenance and repair revenues. They are targeting a return to higher retention rates and expect continued portfolio additions to drive future service revenue.

• Modernization cycle opportunities: The company sees the aging global elevator base as a structural driver for modernization demand. Management expects modernization sales to sustain double-digit growth, particularly in regions like EMEA and China, where government stimulus and customer needs for upgrades are pronounced.

• Cost management and margin expansion: Otis aims to mitigate New Equipment headwinds through cost savings programs, pricing strategies, and productivity initiatives. The China transformation program is expected to yield $40 million in annual run-rate savings, and management anticipates ongoing operating margin improvement, even as tariffs and mix present challenges.

Catalysts in Upcoming Quarters

In the quarters ahead, the StockStory team will closely monitor (1) the pace of service portfolio growth and progress in customer retention initiatives, (2) execution on the modernization backlog as government stimulus and infrastructure upgrades play out, and (3) the impact of cost savings programs, especially in China, on operating margins. We will also watch for any recovery in New Equipment sales, particularly in key regions like the Americas and China.

Otis currently trades at $94.05, up from $91.36 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free for active Edge members).

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