By Apratim Sarkar
July 22 (Reuters) – Elevator maker Otis Worldwide on Wednesday cut its annual adjusted profit forecast on the back of increased costs, especially tied to labor, and said it had “broadly offset” the impact of the Middle East conflict with higher pricing.
Tariff pressures and disruptions caused by the war in Iran, which has entered its fifth month, have been a drag for industrial companies. In April, Otis had flagged project delays due to shipment disruptions amid the conflict.
“We’re watching the Middle East conflict, but do not expect a significant impact to our outlook,” CEO Judy Marks said.
While strong demand for elevator repairs and modernization drove growth in its service business, Otis flagged an additional $50 million to its full-year forecast due to productivity and cost pressures as it ramps up investments in the segment.
Weakness in its new-equipment business, particularly in China where sales were down in the high teens, was an additional drag.
Marks said Otis “deliberately” lowered its forecast as it invests in service quality, staffing and execution to prepare for what it sees as a multi-year boom in elevator repairs and modernization.
Otis cut its annual adjusted profit per share forecast to between $4.01 and $4.05, from its prior outlook of $4.20 to $4.24.
Strong service revenue growth was overshadowed by a margin miss and a sizeable cut to the full-year forecast, RBC analysts said. Shares of the company were down 2%.
The company expects annual growth in organic sales of new equipment to be flat or a low-single-digit percentage lower; organic service sales are expected to be up mid-to-high single digits.
Its second-quarter adjusted profit came in at $1.01 per share, in line with analysts’ average estimate, according to data compiled by LSEG.
Quarterly revenue rose 7% to $3.86 billion, above estimates of $3.76 billion from a year ago, while new equipment sales were flat at $1.3 billion.
(Reporting by Apratim Sarkar in Bengaluru; Editing by Sahal Muhammed)
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