Otis Worldwide Q3 2026: sales up 6% but adjusted EPS flat at $1.05; Service margin recovers to 24.2%

Overview

Otis, the world's largest elevator and escalator company, grew third-quarter 2026 sales 6% to $3.91 billion, with organic growth (which leaves out currency swings and acquisitions) also at 6%. Service, the business that maintains, repairs and upgrades existing elevators, grew 8%. New Equipment, meaning elevators for new buildings, grew 3%, its first organic increase this year. Profit did not keep up. GAAP diluted EPS rose 14% to $1.08, but adjusted EPS, management's figure without restructuring and one-off items, was flat at $1.05, and adjusted operating profit fell $6 million to $626 million.

The two EPS figures tell different stories because of one-off items. This quarter's GAAP result includes a $15 million tax benefit tied to a 2024 German tax ruling. Last year's quarter carried $47 million of restructuring, "UpLift" transformation and separation-related charges that are gone this year. Otis also kept its full-year outlook, including adjusted EPS of $4.01–4.05, after cutting it in July.

This report is written from the earnings release (Exhibit 99.1 to the 8-K filed October 28, 2026). The full 10-Q isn't filed yet, so the release's regional detail is given in ranges ("low teens", "greater than 20%") and the longer explanations of cost drivers found in a 10-Q aren't available.

Key figures

Operating margin is the share of sales left after running the business, before interest and tax. A basis point (bp) is one hundredth of a percentage point, so 110 bps is 1.1 percentage points.

Takeaway: Otis grew sales 6% but did not grow underlying earnings per share. The improvement this quarter is the 100 bp rise in Service margin from Q2 to 24.2%, the clearest sign yet that this year's extra Service spending is starting to pay back. New Equipment earned only $42 million on $1.3 billion of sales, and China fell further, so profit growth still depends almost entirely on Service margins continuing to recover.

Service: margin recovering from Q2, still below last year

Service is two-thirds of Otis's sales and almost all of its profit: $633 million of the $675 million total segment operating profit. Organic Service sales rose 7%:

• Maintenance and repair (regular servicing contracts plus fixes when something breaks) grew 4% organically, down from 6% in Q2.
• Modernization (replacing major parts of an ageing elevator, such as its motor, controls or cab) grew 20% organically. Modernization orders rose 10% at constant currency, and the modernization backlog of signed but unfinished work was 20% higher than a year earlier.

Segment profit rose $12 million, or $20 million at constant currency. The release credits "higher volume, favorable pricing and other employment related cost reductions," offset by "higher labor cost including the impact of ongoing strategic initiatives and productivity, and unfavorable mix." Mix matters here. Modernization is project work and earns less than recurring maintenance contracts. When modernization grows 20% and maintenance 4%, the segment's average margin falls even if each job is priced well. CEO Judy Marks credited "investments in field capability and AI-enabled pricing" for the margin moving back above 24%.

New Equipment: China worse, everywhere else better

New Equipment sales rose 3% to $1.30 billion. By region, as the release describes them:

• Americas: sales up by a low-teens percentage, orders up by a low-teens percentage.
• Asia Pacific (reported separately from China): sales up by a high-single-digit percentage, orders up by a low-single-digit percentage.
• EMEA (Europe, Middle East and Africa): sales up by a mid-single-digit percentage, orders up by a low-single-digit percentage.
• China: sales down more than 20%, orders down by a low-teens percentage.

Total orders rose 1% at constant currency, compared with a 5% decline in Q2, and the backlog was 4% higher than a year ago. Profit went the other way. Segment profit fell to $42 million from $59 million, and fell $22 million at constant currency, "primarily from unfavorable price and mix." Profit fell while sales grew, which suggests Otis is accepting lower prices to win work. China orders falling less than China sales may mean the worst of the decline is passing, but the release gives no further detail.

What the headline numbers hide

• GAAP EPS growth comes from one-off items. GAAP EPS is the official accounting figure. Adjusted EPS takes out items management considers non-recurring. The release's reconciliation shows those items added $0.03 per share to GAAP EPS this year (mainly the $15 million German tax benefit) and subtracted $0.10 a year ago (UpLift restructuring of $27 million, UpLift transformation costs of $10 million, other restructuring of $6 million and separation-related items of $4 million). That $0.13 swing accounts for the whole move from $0.95 to $1.08. Adjusted pretax income fell 1.8%, from $567 million to $557 million.
• Buybacks held adjusted EPS flat. Diluted shares fell 2.8% to 381.9 million because of earlier repurchases. That was enough to offset the 2% fall in adjusted net income ($411 million to $402 million). Without the lower share count, adjusted EPS would have fallen about 2%. The release also names three headwinds: the adjusted tax rate rose to 25.7% from 24.5%, adjusted net interest expense rose to $69 million from $61 million, and currency was unfavorable. Lower earnings paid out to minority partners ($12 million vs $17 million) helped.
• No repurchases in Q3. Otis bought back $807 million of stock in the first half and none in the third quarter, against $248 million a year earlier. It paid $168 million in dividends. The release doesn't say why buybacks stopped. Without them, next year's share count will fall less than this year's.
• Cash lagged profit. Operating cash flow was $337 million against net income of $426 million (including minority interests), or 79%. It was down from $374 million a year ago, which the release puts down to working capital. Contract assets and liabilities used $130 million of cash. Adjusted free cash flow, which excludes $32 million of German tax refunds and small restructuring payments, was $272 million against $337 million. Year to date, receivables are up 10% and contract assets 30% since December, compared with 7% sales growth, so more cash is waiting to be collected.
• Guidance held, but cash guidance slipped. The full-year adjusted free cash flow outlook is now "~$1.5 billion," which is the bottom of July's $1.50–1.55 billion range.

On balance the quarter is flattered: GAAP EPS rose 14% only because a $15 million tax benefit this year replaced $47 million of restructuring charges last year, while adjusted EPS was flat and adjusted pretax income fell 1.8%.

Did last time's read hold up?

Our Q2 report said the key question for the second half was whether the extra Service spending on labor, service quality and pricing would start to raise Service margins again. It started to. Service margin rose 100 bps from Q2 to 24.2%, though it is still below last year. The Q2 report also saw New Equipment's drag easing outside China. That held: organic sales went from -1% to +3%, and orders from -5% to +1%. China itself got worse. Modernization growth slowed somewhat, with organic sales at +20% (24% in Q2) and the backlog at +20% (24%).

Outlook

Otis kept its full-year 2026 outlook (all adjusted except sales):

Based on the nine-month figures, the outlook implies fourth-quarter adjusted EPS of about $1.05–1.09 ($4.01–4.05 minus $2.96 so far) and adjusted operating profit of about $637 million ($2.4 billion minus $1.763 billion). That would be the year's highest quarterly profit. It also requires roughly $670 million of adjusted free cash flow in Q4, against $834 million in the first nine months, so Q4 cash collection has to be strong. Receivables and contract assets have grown faster than sales this year, which makes that harder.

Our read: Service sales growth is well supported by a modernization backlog 20% higher than a year ago. The question is profit. Holding the full-year EPS range requires Service margins to keep improving from 24.2%, because New Equipment is earning almost nothing and China is still declining. With buybacks paused in Q3, the share count will help EPS less from here. Leadership is also changing: Otis said in September that Judy Marks will retire once a successor is appointed, expected in the first half of 2027. The full 10-Q, due in the coming days, should give more detail on Service costs and on why buybacks stopped.