Otis Worldwide Shares Slide Amid Tariff-Driven Chinese Order Slump

Otis Worldwide (OTIS) shares fell sharply in premarket trading after the company reported mixed first-quarter results, with tariff-related headwinds and a steep decline in Chinese orders casting a shadow over its New Equipment segment. While its high-margin Service business remained a bright spot, the broader impact of U.S.-China trade tensions underscored the risks facing global manufacturers reliant on cross-border supply chains.

The company’s Q1 2025 net sales dipped 3% to $3.35 billion, missing estimates, with New Equipment sales plummeting 9% to $1.16 billion. Orders from China—a critical market for Otis—fell by more than 20%, a decline directly tied to “heavier tariff sanctions” and macroeconomic pressures. Otis now projects tariffs will cost its 2025 operating profit between $45 million and $75 million.

Service Strength vs. Equipment Struggles

Otis’ Service segment, which accounts for 65% of total sales, proved resilient. Organic sales grew 4% to $2.19 billion, with modernization orders jumping 12%, driving a 13% rise in backlog. This recurring revenue stream—critical to Otis’ “service-driven” strategy—supported an adjusted EPS beat of 5% to $0.92, outpacing estimates. The segment’s operating margin expanded 40 basis points to 24.6%, reflecting pricing power and productivity gains.

However, the New Equipment segment faced a perfect storm. Sales dropped 7% organically, with China’s orders collapsing more than 20% due to both domestic property market weakness and tariff impacts. The Americas also struggled, as inflation and supply chain disruptions hit elevator demand.

Tariff Impact and Strategic Adjustments

The $45 million to $75 million tariff-related drag on 2025 profits is a stark reminder of global trade tensions. Otis is countering this by localizing supply chains, renegotiating contracts, and prioritizing higher-margin service work. The company’s UpLift cost-savings program aims to deliver $230 million in annualized savings by year-end 2025, with $200 million targeting supply chain and process efficiencies.

Meanwhile, Otis is doubling down on its service pivot. Modernization orders—a key metric for future service revenue—rose 12%, and its backlog grew 14% at constant currency. This suggests long-term demand stability, even as New Equipment faces cyclical headwinds.

Investor Takeaways and Outlook

The stock’s 3% premarket decline reflects near-term concerns over New Equipment and China exposure. However, Otis’ revised outlook—upping full-year sales guidance to $14.6–14.8 billion (3–4% growth) and reaffirming adjusted EPS of $4.00–4.10—signals confidence in its service model. The 8% dividend hike, the fifth straight annual increase, further underscores financial discipline.

While tariffs and China’s property slump pose risks, Otis’ focus on recurring revenue and cost discipline provides a buffer. The Service segment’s 4% organic growth and margin expansion suggest resilience, even as New Equipment drags.

Conclusion: A Mixed Picture, But Service Offers Ballast

Otis faces a challenging 2025, with tariffs and China’s slowdown weighing on New Equipment sales. Yet its Service segment’s consistent growth—bolstered by modernization demand and margin improvements—remains a critical stabilizer. The company’s revised guidance and shareholder returns reflect a strategy to prioritize profitability over top-line growth in turbulent markets.

Investors should monitor two key metrics: (1) whether China’s New Equipment orders rebound, and (2) if the Service segment’s margin expansion can offset tariff impacts. With $230 million in cost savings on track and an 110% dividend growth streak since its spin-off, Otis appears positioned to navigate trade headwinds—but its stock will remain tied to China’s property market recovery and global trade resolution.

In short, Otis’ Q1 results highlight the peril of overexposure to trade-sensitive markets. Yet its service-centric model offers a lifeline—proving that in a choppy economy, recurring revenue streams can keep the elevator rising.