Otis Service Growth Builds Momentum as Equipment Demand Stays Weak

Otis Service Revenue Becomes the Core Growth Engine

Service accounted for 65.4% of 2025 revenues, making it the larger of Otis’ two segments. The segment includes maintenance, repair and modernization services across a maintenance portfolio of more than 2 million units worldwide.

In the second quarter of 2026, Service net sales rose 11% year over year to $2.58 billion. Organic sales increased 9%, helped by broad gains across maintenance, repair and modernization activity.

OTIS Modernization Backlog Extends Revenue Visibility

Modernization remains a key support for Service growth. Organic modernization sales increased 24% in the second quarter, while modernization orders rose 9% at constant currency.

Backlog grew 26% at constant currency, giving Otis better visibility into future modernization revenues. Management expects Service organic sales to grow in the mid-to-high-single-digit range in 2026, though second-half Service growth is expected to ease to about 6% as modernization normalizes to a low-teens rate.

Otis New Equipment Demand Remains Under Pressure

New Equipment remains the weak spot. Second-quarter organic sales declined 1%, reflecting a high-teens revenue drop in China and a mid-single-digit decline in Europe, the Middle East and Africa.

Orders fell 5% at constant currency as declines in Asia Pacific and China offset growth in the Americas and Europe, the Middle East and Africa. The segment’s operating margin contracted 220 basis points to 3.1%, underscoring the impact of lower volume, unfavorable pricing and mix.

Carrier Global Corporation CARR, a climate and energy solutions company, offers investors another lens on building systems demand. United Rentals, Inc. URI, which serves construction and industrial customers with equipment rentals, provides a broader read on project activity tied to the same end-market cycle.

OTIS Cost Actions Target a Service Margin Recovery

Otis is trying to improve Service execution through its UpLift transformation. The effort focuses on standardized field processes, frontline execution and customer retention.

The company invested $15 million in Service Excellence during the second quarter and plans $50 million of Service Excellence and pricing initiatives in 2026. Management also completed non-frontline restructuring actions and expects Service margins to improve from 23.1% in the first half of 2026 to about the mid-24% range in the second half.

Otis Signals Favor Growth but Not Near-Term Momentum

The bottom line is that Otis has a durable Service thesis, but the stock does not yet show clean near-term confirmation. Recurring maintenance, repair and modernization revenues support the operating case, while China weakness, low New Equipment margins and cost pressure keep the earnings setup mixed.

OTIS currently carries a Zacks Rank #4 (Sell). That ranking reflects weaker short-term estimate revision trends, so it tempers the appeal of the Service-led growth story for investors focused on the next one to three months.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Style Scores are more balanced. OTIS has a Growth Score of B and VGM Score of B, pointing to stronger operating potential across growth and combined style factors. Its Value Score of C and Momentum Score of C are more neutral, suggesting that valuation and price action are not yet providing the same level of support.

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