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Otis raises full-year outlook amid earnings beat

Myles Udland, Brian Sozzi, and Julie Hyman discuss Otis Worldwide Corp. beating on Q2 estimates due to a boost from new equipment orders and the company raising its full-year outlook.

Video transcript

MYLES UDLAND: And we did see some earnings out before the bell today. Speaking of cyclicals, Otis Elevator, Brian Sozzi, out with their results. And I know you talked a little bit with the company's CEO about how they're thinking about their business today.

BRIAN SOZZI: Right, Myles, and another good quarter from an industrial company, Honeywell out with earnings last Friday. Blew it out of the water. We talked to the folks at Whirlpool, very strong second quarter and outlook. And we're also seeing the same today from Otis. Sales beat significantly.

Earnings beat by $0.07. Operating profit margins up in both of its business segments. They came out today raised their full year outlook by more. Raised their full year earnings outlook by more than their second quarter guidance. Their second quarter results beat. That is always a good thing to see on an earnings day.

And I caught up with CEO Judy Marks prior to coming on air, calling out-- she's calling out 50%-- 50% order growth in their Americas business. And they're really seeing that being driven by new equipment sales. So people, residential and commercial customers, buying new elevators. They're seeing that in the maintenance side of the business. A lot of us have not been in buildings for over a year. Those elevators now have to be serviced. So Otis is seeing that business come back as well.

A lot of new-- a lot of buildings are upgrading the technology in their elevator. She was telling me about one new Otis elevator, where you could actually book your elevator in advance off of your iPhone. That is definitely pretty cool. Surprise to see the stock down here in the early going. It did run up into the earnings results about 7%.

But nonetheless, stock is down here, despite the beat and the guidance raise. If anything, perhaps call red flag out on inflation. Marks telling me that they will see inflationary commodities hit this year of $75 million to $80 million. They buy $300 million worth of commo-- worth of steel every year, that from mostly from the US. So that is inflationary hit for their business.

Marks telling me they have had to raise prices. They've have had to drive some more productivity out of their business. But nonetheless, a pretty good quarter overall from Otis, again, continuing that trend of some strong results out of industrials.

MYLES UDLAND: But--

BRIAN SOZZI: Yeah?

MYLES UDLAND: Yeah, you're right, but I agree. But the stock doubled in the last year. Is Otis going to grow faster than GDP realistically?

BRIAN SOZZI: Well, their earnings could. If they're driving more productivity from their business, and they're selling more maintenance, and they're selling more elevators, it makes sense.

JULIE HYMAN: I guess it depends on the upgrade cycle, how much money the people are going to-- that business owners are going to want to put into the buildings.

MYLES UDLAND: Yeah, I just think it's a great example of what we were chatting about before, though, the since 2019 comp. Because does-- I mean, just through putting elevators in industrial businesses, how much-- what's your growth trajectory? I mean, yeah, maybe you could grow a little bit faster than that, right? But the organic trajectory of the economy is essentially the throttle on. You're not selling software.

BRIAN SOZZI: This--

JULIE HYMAN: But you're getting a fancy new elevator that you can program with your phone.

MYLES UDLAND: I know, but I guess it's had-- the stock has had an amazing run, and the business has had a kind of trajectory that you would have killed for. But now it's like, what's the next phase for it? And I'm not sure how much of a different case you can tell versus the way management thought three years ago, OK, we're going to spin out, and then we're going to try to tell the Otis specific story. That has gone probably better than anybody could have imagined, right?

BRIAN SOZZI: I will leave you with this fun fact to get you thinking. Marks telling me that 6 million elevators in the country are more than 20 years old. You have to upgrade the stuff. So are you looking like an iPhone 5G upgrade cycle for elevators? Not sure, but it is there.

MYLES UDLAND: The elevator is super [INAUDIBLE].

BRIAN SOZZI: There you go.

[LAUGHTER]