オーティス（OTIS）2026年第3四半期決算説明会：モダニゼーションがオーガニック成長6%を牽引

オーティス・ワールドワイド（NYSE: OTIS）が発表した2026年第3四半期決算は、サービス事業の勢い、モダニゼーション（改修）の受注残高の売上化、および新造事業の成長再開に支えられ、過去13四半期で最も高いオーガニック売上高伸び率を記録しました。中国が引き続き主たる押し下げ要因となったほか、サービス事業の売上構成比や契約維持率が利益率の改善を限定的なものにとどめました。

主なポイント

• 売上高は39億ドルに達し、オーガニック売上高は6%増となりました。サービス部門は7%増となり、新造部門は3%増と、2023年以来初めてプラス成長に転じました。
• モダニゼーション部門のオーガニック売上高は約20%増となりました。受注高は10%増加し、受注残高は為替変動の影響を除いたベースで20%増加し、今後の案件執行に対する見通しが高まりました。
• サービス部門の営業利益率は24.2%となり、前年同期比で130ベーシスポイント低下したものの、前四半期比では100ベーシスポイント上昇しました。モダニゼーション部門の堅調な販売数量が利益額を下支えしたものの、セグメント全体の利益率ミックスを押し下げました。
• 新造部門のオーガニック売上高は、米州で13%増、EMEAで6%増となったものの、中国では20%超減少しました。世界全体での新造部門の受注高は1%増（中国を除くベースでは5%増）となりました。
• 調整後フリーキャッシュフローは、第3四半期が約2億7200万ドル、最初の9カ月間が8億3400万ドルとなり、前年同期比で9%増加しました。
• 経営陣は2026年通期の業績見通しを据え置き、売上高を151億〜153億ドル、調整後EPSを4.01〜4.05ドル、調整後フリーキャッシュフローを約15億ドルとしています。

主要財務データ

事業および業績

サービスおよび近代化改修

サービス部門のオーガニック売上高は増加し、7%となり、保守、修理、近代化改修の全分野で成長した。保守・修理売上高は上昇し、4%となった。保守売上高は増加し、2%となった。これは3%のポートフォリオ成長および3%の値上げを反映したもので、解約や地域ミックスにより一部相殺された。修理売上高は増加した9%。

モダニゼーション（改修）事業が引き続き主な成長エンジンとなりました。オーガニック売上高は約20%増加し、受注残高の解消と施工の改善が寄与しました。モダニゼーションの受注高は10%増加し、これには中国での20%超の増加、EMEAでの10%台半ばの増加、および米州での約10%の増加が含まれます。

モダニゼーションの受注残高は、当四半期末時点で現地通貨ベースで20%増となりました。経営陣は、受注残高の増加率が2025年末時点の30%から減速したと指摘しました。これはオーチスがプロジェクトの施工を加速させたためです。

モダニゼーションは保守事業よりも利益率が低いため、モダニゼーション比率が高まったことがサービス部門全体の利益率の重荷となりました。しかし経営陣は、モダニゼーションの利益率が前四半期比で改善し、中期的な10%の利益率目標に近づいたと述べました。

オーチスはまた、修理およびモダニゼーション案件の特定、マイクロプライシング（細分価格設定）、スケジューリング、手配、作業員のルート最適化に向け、AI活用ツールの導入を引き続き推進しました。経営陣によると、年初に達成されたサービス品質の向上は維持されているものの、契約維持率の改善への反映にはタイムラグが生じる見込みです。

新設機器事業

新設機器のオーガニック売上高は3%増加し、2023年以来初となるオーガニック成長を記録しました。米州が13%増で全体を牽引し、受注残の売上計上が寄与しました。EMEAは6%増加し、アジア太平洋地域はインド主導で1桁台後半の伸びとなりました。

中国における新設機器の売上高は20%超減少しました。第3四半期において中国はオーチスの新設機器売上高の17%を占めるにとどまった一方、サービス部門が中国売上高の51%を占め、同市場でサービスおよびモダニゼーションへの戦略的シフトを進めていることを反映しています。

グローバルでの新設機器の受注高は1%増加し、中国を除くベースでは5%増となりました。米州での受注は10%台前半の成長となり、北米は9四半期連続で受注増を記録しました。新設機器の受注残高は現地通貨ベースで4%増、中国を除くベースで8%増となりました。

経営陣は、北米における受注残高および約18カ月のリードタイムが継続的な売上成長を支えているものの、大型プロジェクトの施工時期により四半期ごとの業績にばらつきが生じる可能性があると説明しました。

業績予想

オーチスは2026年の通期見通しを維持しました。

経営陣は、中国を除くすべての地域で成長が見込まれ、世界の新設機器市場が安定化に向かうという予想を維持しています。中国における減少は緩やかになると予想されています。同社はまた、設置機器の経年劣化や部分的なアップグレード・全面刷新の需要に支えられ、モダニゼーション（改修）市場がドルベースで2桁のペースで拡大すると見込んでいます。

第4四半期について、経営陣は、現在の生産性と解約率のレベルが安定して推移することを前提に、サービス事業の利益率が第3四半期と概ね同水準にとどまると予想しています。前年同期との比較には、1500万ユーロの 前年の資産売却による貢献が含まれており、これは約 60ベーシスポイントの 向かい風に相当します。

リスクおよび注視すべき点

• 中国の新設機器： 売上高は20%超減少した一方、受注高および受注残高はそれぞれ10%台前半、10%台半ばのペースで減少しました。経営陣は、前四半期比で悪化ペースが緩やかになっているものの、市場環境は引き続き厳しいと述べています。
• サービス解約率／顧客維持： 解約率（チャーン）は当初の予想よりわずかに悪化し、保守事業の成長を押し下げました。経営陣は、サービス品質の向上が顧客維持を後押しするはずであるものの、契約更新のタイミングが個々に異なるため、効果が表れる時期は依然として不透明であると述べています。
• 事業構成（ビジネスミックス）： モダニゼーション（改修）の成長加速は利益額を増加させるものの、モダニゼーションは保守事業よりも利益率が低いため、サービス事業の利益率を圧迫します。
• 新設機器事業の収益性： セグメント営業利益率は、主に不利な価格調整や構成比の悪化により3.2%に低下しました。ただし、販売数量の増加や生産性向上によって一部相殺されました。
• 実行力と労働力： オーティスは新しく補充した現場従業員が戦力化するにつれて下請け業者への依存度を低減させていますが、受注残高を売上に変え続けられるかどうかは、生産性と人員配置にかかっています。
• インセンティブ報酬： 第3四半期には業績に連動したインセンティブの調整が含まれていました。経営陣はそのプラス効果の金額を明かしておらず、最終的な精算は第4四半期に行われると述べています。

アナリストQ&Aの要点

サービス事業の利益率の動向： 経営陣は、第4四半期のサービス事業利益率は前期比で概ね安定するとの見通しを示しました。価格設定、販売数量、販売管理費（SG&A）は概ね予想通りに推移している一方、モダニゼーション比率の上昇とわずかな解約率の上昇が主な相殺要因となっています。

中国のモダニゼーション： 経営陣は、中国における特別債に基づくモダニゼーション施策が2027年まで続くと予想しており、正確な金額は不明なものの、資金規模は少なくとも現在の水準と同等になると見ています。またオーティスは、景気刺激策以外のモダニゼーション活動も拡大しています。

モダニゼーションの成長と利益率： 経営陣は、前年同期のモダニゼーション受注高が43%増加していたため、第4四半期の受注比較はハードルが高くなると注意を促しました。それでもなお、需要は各地域や最終市場全体で引き続き広範に見られます。販売数量の増加、サプライチェーンの効率化、据付生産性の向上により、中長期的にモダニゼーションの利益率が支えられると予想されています。

北米市場の見通し： 9四半期連続となる新設機器受注高の増加と受注残高の拡大が、北米売上高に対する経営陣の強気な見方を裏付けています。需要は特にホスピタリティ、データセンター、医療、産業プロジェクトで顕著に見られます。

サービス品質と顧客維持： 経営陣は、契約解約のほとんどが価格ではなく対応力やサービス品質に起因していると説明しました。顧客からのフィードバックや修理需要は改善しているものの、顧客維持率向上に向けた明確な時期を示すことはできませんでした。

欧州におけるM&Aの可能性：オーティスは、積極的なボルトオン買収戦略を維持しており、収益向上に寄与し効果的に統合できる適切なサービス資産があれば検討する方針を示した。経営陣は、業務の支障や市場集中に関する問題を引き起こすような取引は避けると強調した。

決算説明会 文字起こし全文

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Good morning, and welcome to Otis' Third Quarter 2026 Earnings Conference Call. This call is being carried live on the Internet and recorded for replay. Presentation materials are available for download from Otis' website at www.otis.com. After today's prepared remarks, we will host a question-and-answer session. [Operator Instructions]

I'll now turn the call over to Sofia Sines, Senior Vice President, Investor Relations.

Unknown Executive

Thank you, Sarah. Welcome to Otis' Third Quarter 2026 Earnings Conference Call. On the call with me today are Judith Marks, Chair, CEO and President; and Cristina Mendez, Executive Vice President and CFO. Please note, except for otherwise noted, the company will speak to results from continuing operations, excluding restructuring and significant nonrecurring items.

A reconciliation of these measures can be found in the appendix of the webcast. We also finished that the presentation contains forward-looking statements, which are subject to risks and uncertainties. Otis' SEC filings, including our Forms 10-K and 10-Q, provide details on important factors that could cause actual results to differ materially. Now I'd like to turn the call over to Judy.

Judith Marks

Thank you, Sophia, and we are so pleased to have you joining our Otis team. Good morning, afternoon and evening, everyone. Thank you for joining us. We hope that everyone listening is safe and well. Starting on Slide 3. We delivered a solid third quarter with continued progress across the business, which reflects the steps we're taking to build a stronger foundation for sustained growth. When we look -- when we take a look at the business, we see healthy demand and strong momentum in service.

We also view modernization as 1 of the most attractive opportunities across our business, supported by our large and aging installed base. For the quarter, Organic sales increased 6%, led by 7% growth in Service and 3% growth in new equipment. Service operating margins grew 100 basis points sequentially to 24.2%. The Maintenance and repair had organic sales growth of 4%, with repair sales up 9% in the quarter. This builds on the solid trend we've seen over recent quarters.

Modernization organic sales were up 20% in the quarter, with orders increasing 10% and backlog growing 20% at constant currency. These results reinforce our confidence that the investments we have been making are fueling continued service momentum and our service flywheel. In New Equipment, organic sales increased for the first time since 2023 to 3%. The Americas New Equipment organic sales increased 13%, supported by a strong backlog conversion.

EMEA and Asia Pacific also delivered strong organic growth with both regions improving sequentially. Although China remained weak with new equipment sales decreasing more than 20%. The rate of decline for orders and backlog moderated sequentially to a low teens and a mid-teens rate, respectively. Overall, New Equipment orders grew 1% and 5% excluding China, as demand across the rest of the world remains strong, particularly in the Americas, where orders grew for the ninth consecutive quarter.

We remain disciplined in project management and pricing with a continued focus on maintaining backlog quality. From a cash perspective, adjusted free cash flow reached approximately $272 million in the quarter and $834 million through the first 9 months of the year, an increase of 9% and compared with the prior year-to-date period. We continue to execute the service investments we announced at the beginning of the year, focused on growing field and pricing capabilities and improving service quality.

We are encouraged by the results we are seeing with strong service growth and reaching target levels on service quality, providing early evidence of these investments or positioning Otis for future service success. Beyond our solid financial performance, we continue to advance and deploy our AI-enabled and digital initiatives, reflecting our ongoing commitment to innovation to improve our business and performance. In service, we're applying technology to help our teams better serve our customers and improve operational execution.

For example, our internal data intelligence tool helps identify repair and modernization opportunities enabling more proactive customer conversations and helping customers address the needs of their equipment. In pricing, our AI-enabled micro pricing capabilities support more consistent and disciplined pricing decisions. We're also progressing the rollout of field service tools, which are helping us to optimize scheduling dispatch and mechanic routes to reduce travel time, improve productivity and drive greater consistency in service delivery.

Collectively, these capabilities will enable us to operate more efficiently, deliver a more consistent experience for our customers and support continued service growth. Turning to our orders performance on Slide 4. We see -- we continue to see healthy orders. Combined New Equipment and modernization orders increased 4%, driven by Americas and EMEA, while backlog grew 7%, and excluding China, backlog was up 10% at constant currency.

New Equipment orders increased 1%, up 5% excluding China. We saw strength in the Americas, where orders grew low teens with North America delivering order growth for the ninth straight quarter. EMEA grew low single digits, led by another strong quarter in Europe, where orders increased low teens, partially offset by the Middle East. Asia Pacific also grew low single digits, while China orders declined low teens showing a sequential improvement.

New Equipment backlog increased 4% at constant currency and 8% excluding China. Modernization continued to be the growth driver in the quarter, with orders increasing 10%. Growth was led by China, where modernization orders increased more than 20%. This continues to reinforce our strategic pivot to service, particularly modernization in China. EMEA delivered mid-teens growth and Americas grew approximately 10%. Asia Pacific declined mid-single digits due to project timing.

Customer demand for modernization solutions remains healthy. We ended the quarter with modernization backlog up 20% at constant currency. This strong backlog provides a good runway for the future and reinforces our confidence in the multiyear modernization opportunity ahead. Our teams around the world continue to improve our execution and delivery, securing customer wins that demonstrate the breadth of our capabilities and the value we're bringing across the entire asset life cycle.

As we install, modernize and maintain equipment, we deepen relationships with customers, expand our service footprint, and create opportunities for long-term recurring revenue growth. For example, in the Americas, we are pleased to expand our long-standing partnership with Rucker's University through our commitment to 2 significant projects. We will install 6 Gen 3 elevators and 3 SkyRise elevators, including our Compass dispatching and EMS Panorama technology at the Helix, a mixed-use, health care biotech and pharma innovation hub in New Brunswick that combines specialized laboratory, commercial and residential space.

We'll also modernize 6 elevators at the Rucker Stanley Bergen building in Newark, including new machines, controllers and doors. Both of these projects use our Otis ONE IoT technology and build on our existing relationship with Ruckers, where we maintain and service more than 420 elevators and escalators across the university's 3 campus network.

In China, where we continue to lead in high-value infrastructure, we secured both new equipment and modernization contracts with the Wuhan Metro system. For New Equipment, we'll provide 113 elevators and escalators for Line 11, including 81 of our public escalators, 30 Gen 3 elevators and 2 freight elevators. For the modernization project, the largest elevator modernization contract in the Wuhan Metro systems history will modernize 147 elevators across 72 stations using our Gen 3 MOD technology. Both orders include our Otis ONE IoT service platform.

These contracts built on our successful escalator modernization work completed for the Wuhan Metro system in 2024 and highlight the growing opportunity to upgrade critical transportation infrastructure while improving safety, reliability and the passenger experience. In the United Kingdom, Otis was selected for the redevelopment of 99 City Road in London. Otis will provide 27 units, including SkyRise, Gen 3 Peak and Gen 3 robot systems as well as Compas360 destination dispatching, EMS Panorama 2.0 and the Otis ONE connected platform.

This project demonstrates our ability to deliver integrated mobility solutions for some of the world's most demanding commercial environments. And finally, in Southeast Asia, we're proud to support the modernization of UOB Plaza, a prominent Grade A office tower in Jakarta's Central Business District. Otis will modernize the building's vertical transportation system with 12 SkyRise elevators complemented by the Compass 360 destination dispatch system integrated with third-party facial recognition technology at the turn styles and EMS Panorama 2.0 monitoring solutions.

The win reflects our strong customer relationships, technical expertise and collaborative approach with Otis as a trusted partner to enhance building performance, passenger experience and long-term reliability at 1 of Jakarta's landmark commercial buildings.

Now turning to our third quarter results on Slide 5. Otis delivered net sales of $3.9 billion with organic sales up 6%. The quarter also marked our strongest organic sales growth performance in 13 quarters driven by continued strength service and growth in New Equipment. Adjusted operating profit, excluding a $3 million foreign exchange headwind, decreased $3 million in the quarter. Adjusted operating margin contracted by 110 basis points to 16%.

Adjusted EPS was flat year-over-year as the benefits from a lower share count and minority interest were offset by a higher tax rate, higher interest and unfavorable foreign exchange rates. I want to take a moment to mention that this quarter, Otis was honored to be named among Times world's best companies and for the fifth consecutive year, recognized as 1 of Forbes' world's best employers.

These recognitions reflect the dedication of our amazing colleagues around the world, our steadfast commitment to our customers, and our continued focus on delivering sustainable value for customers, colleagues, shareholders and the communities we serve. With that, I'll turn it over to Cristina to walk through our results in more detail.

Cristina Mendez

Thank you, Judith. Starting with service on Slide 6. Service organic sales increased 7% with broad-based growth across all lines of business, reflecting the continued momentum we saw in the first half of the year and the strength of our service-driven business model. Maintenance and repair organic sales grew 4%. Maintenance increased 2% driven by 3% portfolio growth and 3% pricing, partially offset by mix and churn.

Our repair business continued to perform well, delivering high single-digit organic growth. This reflects healthy customer demand across our installed base and traction from our proactive approach to repair, which increases uptime and customer satisfaction. We are pleased to see the flow-through of our micro pricing strategy in repair as anticipated, given the backlog entering the quarter.

Modernization remained a significant growth engine. Modernization sales increased approximately 20%, supported by a strong execution and the conversion of a robust backlog entering the quarter. Service operating profit of $633 million increased $20 million at constant currency, which reinforces our strategy of growing profit dollars. Higher volumes and favorable pricing more than offset higher labor costs, net of onetime benefits, continued investments in service quality, productivity and growth initiatives and an unfavorable business mix.

Service operating margin was 24.2%, down 130 basis points year-over-year, but improved 100 basis points sequentially. The sequential improvement was driven by repair pricing operating leverage from modernization and repair volumes and lower SG&A, including onetime benefits, consistent with our expectations.

Turning now to New Equipment on Slide 7. New Equipment organic sales increased 3% in the quarter. Performance was led by the Americas, where sales increased 13%, reflecting continued strength across the region. EMEA grew 6%, driven primarily by Southern Europe, with both Central and Western Europe also contributing to growth.

Asia Pacific increased at a high single-digit rate supported by a strong performance in India, partially offset by weakness in Korea and Australasia. In China, New Equipment sales declined greater than 20% in the quarter. While market conditions remain challenging in China, the moderation in New Equipment orders declines in this market, together with healthy demand outside of China provides a more constructive backdrop as we look into next year. New Equipment operating profit of $42 million declined $22 million at constant currency.

Operating profit margin was 3.2% and down 150 basis points from the prior year, primarily driven by unfavorable price and mix, partially offset by higher volume and productivity benefits. New Equipment profit is now contributing approximately 6% of segment operating profit. While market conditions remain mixed, our New Equipment business continues to show signs of improvement.

We are encouraged by positive sales growth, strong momentum in the Americas and a healthy backlog outside of China, which provides increased visibility as we continue to execute on our strategy. I will now turn it back to Judy to discuss our 2026 outlook.

Judith Marks

Thank you, Cristina. Turning to Slide 8. Our sales outlook and market expectations for this year remain unchanged. We expect the global new equipment market to stabilize with growth across all regions except China, where the market is expected to remain under pressure, but with declines moderating. Our modernization outlook remains robust as we expect the market to continue to expand at a double-digit rate on a dollar basis, with growth expected across all regions supported by a growing and aging installed base and sustained customer demand for partial upgrades and full replacements.

We continue to expect net sales of $15.1 billion to $15.3 billion, with low to mid-single-digit organic sales growth. Organic service sales are expected to grow mid- to high single digits with new equipment down low single digits to flat. Our adjusted operating profit outlook remains unchanged in the range of down $30 million to flat on an actual currency basis and down $45 million to down $15 million at constant currency.

This year, we have made deliberate strategic investments in Service to strengthen the business and drive the service flywheel going forward. We continue to expect New Equipment profit to be a headwind year-over-year. We're executing on our Service initiatives. And as we close the year, we remain focused on and committed to strengthening service quality and customer centricity, improving productivity and continuing to roll out our micro pricing strategy.

Our adjusted free cash flow outlook is around $1.5 billion. We continue to expect adjusted EPS in the range of $4.01 to $4.05. As we approach the last quarter of the year, we're pleased to see evidence that our Service growth strategy and engine is working. We remain encouraged by the market demand, which is expected to grow in all regions across the globe and in repair and modernization. We're proactively capturing this demand with specialization of our sales force, deployment and adoption of commercial AI-enabled tools and additional standard package offerings in repair and modernization.

In addition, we've put in place our new micro pricing strategy, which is expected to continue to provide positive results. Importantly, our field investments are driving stronger service quality, and we're pleased to see ramp up in our field workforce engine that will support top line growth into the future. With that, I'll ask Sarah to please open the line for questions. Thank you.

Operator

Question-and-answer session. [Operator Instructions] Your first question comes from the line of Varun Govindara with Bernstein.

質疑応答

Varun Govindaraj

Judy, Cristina, Sofia. Congrats on the solid quarter. Quick question for me. So largely in line in 3Q on service margins. We've talked about a sequential ramp going into 4Q. Does that stay relatively unchanged?

Cristina Mendez

Varun, yes, you are right, relatively unchanged. We are reiterating the guide as we have seen Q3 coming in line with expectations. We have just changed or recalibrated the different components in operating profit. You have seen in Q3, much stronger modernization sales that we are pleased to see 20% growth in the quarter. And that, of course, is a headwind on Ross.

Q4 is expected at the midpoint of the guide, and assuming that productivity and churn levels remain at current level to be about the same level as Q3.

Varun Govindaraj

Got it. Understood. Very helpful. And then just a follow-up on modernization in China. Encouraging to see that that's driving growth there. Is there a difference in modernization margins in China versus the rest of the world? Because there is a big difference in new equipment margins in China versus the rest of the world?

Judith Marks

Arun, thanks for asking. It's Judy. Yes, the modernization markets in China tend to look like the New Equipment margins in China. So they follow that same path and our New Equipment margins in China have been very positive over the years and remain that way. we're really pleased with the modernization growth. And when you think about it's now the third year of the bond stimulus, which will -- it's in the 15th 5-year plan, it's going to continue into '27. And we believe beyond based on discussions we've had with the leadership in China in Beijing.

This is really a matter of making sure that there's high-quality living available in so many of the older buildings for so many of the citizens of China. So in the quarter, Mod in China was very strong. And the quarter, the orders were up over 20% revenue was up even more than that and our backlog is up even more than that in mod. So we're going into the fourth quarter strong in odin China.

We anticipate that continuing -- and the only potential policy changes we see next year to the bond stimulus would be the addition of nonresidential because right now, it's very focused on residential at the different tier segments. So we're very positive there, and Sally and the team have also put in a complementary strategy where we're growing MOD as well in nonbond in the non-stimulus that if it were or when it is to end, we'll still have a strong mod business in China.

Operator

Your next question comes from the line of Nigel Coe with Wolfe Research.

Nigel Coe

Thanks for the question. So Cristine, I just wanted just to come back to the service expectations for 4Q. I think is it service margin you expect to be relatively stable Q-over-Q. So higher revenues Q-over-Q, but stable margin? I just want to make sure that was correct. And then just take a step back and look at the 100 basis points of sequential margin expansion in services.

Can you maybe just help bridge us the kind of how much driven by productivity versus pricing. I think you called out a onetime benefit twice in the prepared remarks, Cristina. I just want to make sure we get that as well.

Cristina Mendez

Thank you for the question, Nigel. So yes, you're right. So I said Q4 service was to be broadly in line with Q3, assuming the current productivity and churn levels remain stable. And that means that we still expect a significant step-up on service grows in the second half of the year compared to the first half, as you have already seen in Q3. And as a reminder, in Q4, we faced a tougher compare because last year, we had a EUR 15 million sale of asset contribution to profit, that is a 60 basis point headwind in service rows.

But that was already considered in the outlook. Now to your question about Q4. So we have seen in Q3, very aligned with expectations in terms of the ramp-up of volumes we have seen particularly modernization very strong at 20%. Additionally, price is flowing through exactly as expected. We had it in the backlog entering the quarter and SG&A has also come as expected. The onetimer refers to an adjustment on incentives, very in line with performance. We have a pay-for-performance culture, and we had assumed according to our policies, an adjustment in Q3.

And of course, the final true-up will be in Q4, but all of this was already reflected in the outlook. Maybe the only swing factors we have seen in the quarter have been on the 1 side, churn a little bit headwind as we have seen in the previous quarters and the second 1 on gross the mix of sales because of mobing stronger.

Nigel Coe

Okay. That's very helpful. And then maybe, Judy, there's press reports that TK 1 may have to sell the bulk of their European business. I'm just curious if there's any comments you can make in terms of potential Otis interest or scope to participate in those as sales if there are any?

Judith Marks

Thanks, Nigel. Listen, we have a healthy and a robust bolt-on M&A plan that we've been active on, and we were very pleased to add we maintained earlier this year. We're always looking to add obviously, certain assets and colleagues to our service portfolio where it makes sense for us where it's accretive and where we can integrate well. What we're not looking for is distraction and what we're not looking for is the need for us to have to justify market concentrations in certain parts of Europe.

So if we're to be presented with a package that might come forward, obviously, we'll look at it, but that's about all I can say as of now. We're staying focused. And I think that focus is really the differentiator you saw this quarter. We're being very opportunistic while others may be distracted. And I think that's what you're seeing in our orders. That's what you're seeing in our growing backlog, and that's what you're going to see continue into the fourth quarter and next year.

Operator

Your next question comes from the line of Nick Housden with RBC Capital Markets.

Nicholas Housden

So my first question is on modernization model orders were up 10% in the quarter. Organic sales were up 20% and then the backlog was also up 20%. So Cristina, I'm just wondering if you could maybe kind of square some of those figures how you can have such strong growth in the backlog when you're also growing the sales so strongly. And then I guess the kind of related question is how should we think about that 20% sales figure going forward?

Judith Marks

Nick, let me start, and then I'll have Cristina add some color. I mean we are just really excited about the modernization opportunity, but equally excited at how all 4 of our regions are delivering on that. Again, we put in place a focus on having standard packages, we have a go-to-market strategy and our installation teams have been delivering, which we're very pleased with the mod margins as they've continued to grow.

As you said, orders up 10% in the third quarter. We were up 27% mod orders last year this quarter. So that's really healthy growth on growth. But we were up 43% last year in the fourth quarter. So I want to temper expectations a little for fourth quarter orders on mod. Our backlog was up more than 20% as we came into this into this quarter. So it's actually down from what used to be 24%, now it's 20% the backlog. But we're still growing strongly -- and let me just give you a little color on the regions, if that's helpful because we're just thrilled with how everyone is performing.

Joe and the team, their backlog is up mid-teens in the Americas. Nico and the team is up high single digits. Our Europe team, their backlog is up. Again, they had a very large order fourth quarter last year but strong mild orders performance in the mid-teens this quarter, mainly in Central Europe and Southern Europe. Their backlogs at a very -- at the healthiest level of any of our regions. And as I mentioned before, China is up double digits. So we're going to continue to grow here.

As you know, it creates some mix headwind in profitability in our service segment, but we do tell folks to continue to look at profit dollars and its profit dollars that are going to drive us more in the future than service margins. going to grow service margins, but not at the levels we did before. Cristina?

Cristina Mendez

Yes. No, and adding color to that, Nick, having you reconciling from sales growth, orders growth backlog -- we are very pleased to see synchronously we continue growing orders, and we are also accelerating the execution of the backlog. And as Judy pointed out, -- the backlog growth has been slowing down because of the acceleration of execution. We ended 2025 with a backlog growth of 30%, and we are at 20% now. While we continue taking orders the goal going forward is to execute on customer commitments on time, but we continue seeing a demand in the markets to grow going forward.

Nicholas Housden

Great. That's really helpful. Then my follow-up question is on New Equipment organic growth. It's good to see Americas growth as 13%. And I guess we have seen since probably around Q2 or H2 excuse me, of 2024, some really healthy Americas order intake. So -- my understanding is that the lead times in that region are sort of 18 months to 2 years. So if you just kind of extrapolate that, then it would kind of imply, I think, that we could continue seeing some pretty healthy Americas growth rates for at least the next year or so.

At the same time, we've got China just continuing to decline in the mix. So I guess I'm just curious to hear your thoughts about whether we're sort of on the cusp of a step change in the new equipment growth and maybe what that could mean in terms of things like operating leverage, et cetera?

Judith Marks

Great. Great question, Nick. So let me just hit China for a second, so I can spend time really making sure everyone understands where we are in North America. China, as of the third quarter, is now 17% of our New Equipment revenue and similar to first quarter of this year, China service is now 51% of China sales. So it's back, our strategy is working there. But North America is the showcase right now, 9 consecutive quarters, you were accurate with your about 18-month lead time -- so the New Equipment backlog is now 14% in North America, ninth straight quarter of New Equipment orders growth -- and it is showing up.

That's what you're seeing in the sales. That's how we were able to inflect positive NAS in first time since 2023 and in New Equipment sales. This is going to continue in terms of New Equipment sales. We expect it to be at least flat to positive. I wouldn't say it's going to be linear because sometimes there's some major projects in it. But over time, over the next, certainly, fourth quarter through -- and even further, North America new equipment sales look very promising and very positive. The backlog is there.

Our team is ready to perform and they're doing all of this while simultaneously their service and their mod repair orders are up, they're mod orders in North America. They're my backlog is up 14% -- so -- and that was after a double-digit mod sales quarter. So the team in North America is doing a great job. I will tell you what we're really seeing in the market is while there are challenges in the residential market, you see that, whether it's ABI or Dodge, the segments that are up really are hospitality, data centers as well as some of the hospitals medical, I would say, -- and we're also seeing industrial up, which is very positive.

And in a world where we talk about units and market size, it's important to note that not all units contribute the same, either top line or bottom line. That's why we introduced our robust product line in April across the globe, but we've seen really good pickup here in North America with all the reshoring going on and industrialization going on.

We are selling high-value units there that now are in our orders that will become in our backlog when you look at fabrication facilities, factories, data centers, and that is overtaking some of the lower -- more volume business, but at a lower -- obviously lower price point for what we call residential apartments condominiums. So again, North America team is doing great Joe and the team deserve a ton of credit and we are going to continue to expect growth going forward, both on the intake side and on the conversion side for both New Equipment, Mod, Maintenance and Repair.

Operator

Your next question comes from the line of Alexander Virgo with Evercore ISI.

Alexander Virgo

Judy, Christina. I appreciate you taking the question. I wondered if you could talk a little bit about how you are seeing the implementation and benefits, I guess, in the Service business. I talk you mentioned micro pricing already having some impact. But I'd appreciate any kind of update you can give us on that perhaps around some of the customer response, how are you getting on with hiring people.

That sort of color and commentary would be really helpful. And I don't know if you called it out, but any comment you could make on growth in the service portfolio? Are we still running at that kind of 3 percentage level, that would be helpful.

Judith Marks

Alex, let me start. We are running at the 3% level for the third quarter for the Service portfolio. So that's in a place we want it. We're always focused, though, on trying to grow it more in the higher-value regions of the Americas and EMEA, and that's where we're very focused on service quality. So we'll continue to do that as we go. In terms of where we are on our Service initiatives, we shared the Service Quality Index with you that we were up 7 points based on the investments we made and we shared that last quarter.

Those -- that service quality has held and we're very pleased with those results, and we think that will continue to flow through over time. There is a lag between us seeing that service quality improve and retention rates. But what we are seeing is significant additional demand for repair orders. Repair orders are up, and we're being able to convert that repair. We were able to yield 9% in terms of sales this quarter. That's part of the maintenance and repair business. And that's where micro pricing has been its most successful.

And again, it's highly focused segmentation to understand the value we're adding and what price we can get for that value. So it's not just price or price sake. Again, it's the value the customer wants and how we can get that value and using data to help us do that and also helping our sales force be better prepared to defend that. So all of that drives limited discounting, everything you would want that should and does drive improved pricing.

It takes more time and maintenance because our maintenance contracts ex China are longer than 1 year. And again, we will see that continue to flow through. But Cristine, anything you want to add?

Cristina Mendez

Yes. As you said, on the pricing side, very pleased with the pricing repair maintenance. We have the engine prepared to roll it out, but we are also balancing out price with churn and retention improvement. From a field performance perspective, Alex, so also pleased to see the ramp-up of resources. You see that in our execution in repair and modernization. So the machine is working, and we expect this to be sustained over time. We usually report growth in mechanics by the end of the year, and you will see the numbers in our full year call.

And you will also see that the mix is changing and we are growing more in high value regions will also contribute to revenue growth and profit growth in those regions. And last but not least, productivity. We have seen it broadly stable as anticipated. And as we continue ramping up the execution machine, we work on productivity actions.

Operator

Your next question comes from the line of Steve Tusa with Wells Fargo.

C. Stephen Tusa

Great to be back on a busy day of earnings. Just digging a bit more into the services, I think had said mid-20s, mid-24s kind of service margins in the second half, which was a bit of a ramp into the fourth year now saying flat. Which of those items, I think you kind of bridged us to first half to second half items on the margin, which of those are falling a bit short. And then could you just quantify how much the onetime benefit was in third quarter?

Judith Marks

Yes. Steve, we're not going to quantify that. In our process every year, third quarter, we true up the incentives based on how we're performing and based on us restating our outlook in the second quarter. This is profit we generated this year that we're choosing to use this way to align pay for performance. So we're not going to quantify that. But we do it every year. We did it third quarter last year, similarly, but it just wasn't at the same level. So we thought it was important to call out and to reverse next year with good performance.

So that's the motivation as it should be when you align incentives with performance. In terms of the biggest change for Q4 is -- it's a mix issue mainly, we're seeing far more modernization sales come through, which we want, again, profit dollars, and it gives us the additional portfolio over time, especially for the modernization orders that are off portfolio. So that's been the biggest -- we had said we thought Mod would come in mid-teens this quarter. It came in at 20% revenue, and it's still looking strong for next quarter. So Christina, any other.

Cristina Mendez

Yes. No. And the rest of the levers in the rigs remain broadly in line. So price, as I said before, is coming through. Volume is coming through with a stronger mod. SG&A also coming through, and we had already considered in the outlook, the onetime of incentive release -- you can see here, Steve, our SG&A evolution Q2 to Q3, and this is, of course, reflected there, also considering the restructuring we executed in June. And in terms of recalibration, is the mix of sales and a little bit of churn.

C. Stephen Tusa

Okay. That's super helpful. And just 1 other question, as we move into next year. Is there potential for the China stimulus, they'll still have it, but it will be a lower amount? Or you're saying they'll have it and it will be it will be a higher amount and you're continuing to grow off of the rates? Or is that still TBD?

Judith Marks

We don't know the exact amount, Steve, but it will continue. Our belief is we'll continue at a minimum at the same amount. It has gone up incrementally, though, each year for the past 3 years since it was started. So on mod, we view that as very positive. We've captured significant share there. Again, the team is doing great there. And again, it was part of our very much focused pivot to service strategy in China, as I said in my prepared remarks.

On the New Equipment side, if you allow me, I'd like to be clear here because we had originally started the year where we thought China was -- it will be down 10% in the first half, down less in the second half in terms of the market segment. And it did not get improved in the third quarter. It was still down 10% the market. The reason for that is something called the 828 rule book. It happened on August 28 when the central government basically -- and I believe for all the right reasons, came out with guidance for high-quality development.

It's going to be very good structurally for China over the medium and long term. But what it did to developers was said that they should favor selling and finish completing units right now versus presales. And for any presales they do for the first time in 2 decades, those down payments have to go to escrow, so they can't be used to finance the next project which, as you know, had been done for many years.

So I think there's a healthy structural change happening in New Equipment. I think it will take a little bit of time to flow through but I think the high-quality development that's going to come out of this over the medium term in China will stabilize to a much better new equipment market and a better consistency.

C. Stephen Tusa

Got it. It seems like we have a bit more work to do in analyzing the China market, pretty complex. But thanks a lot for all the color as usual.

Judith Marks

Thanks, Steve.

Operator

Your next question comes from the line of Lewis Merrick with BNP Paribas.

Lewis Merrick

And Cristina. Can you just give us a bit more color on the maintenance growth that translated to 2% net growth given the 3% pricing and 3% portfolio growth. I know you said mix was a component of that. Can you just break out a bit more in terms of maybe by region?

Cristina Mendez

Yes. So this is -- the question, Luis, is 3% portfolio growth, 3% price and 4% impact from churn and mix. churn, as we said last quarter, has come a little bit worse than initially expected. We are very positive about the quality improvement as a result of our investments -- we have seen them sustaining versus what we said in Q2, and we are confident that churn will follow is a matter of time or retention improvement will follow.

The mix effect is also impacting. What Julie said before is not every region contributes the same in terms of revenue per unit. So as we see faster growth in APAC and Asia and China versus EMEA and U.S. that also creates a mix effect.

Lewis Merrick

Okay. And can we just talk about the investments you've been making in additional maintenance emissions. I think big investments sort of kicked off in the back half of last year. So can you just outline where those newly trained staff are in their learning curve and perhaps how the ramp-up looks from here in terms of the returns you expect to generate off of them.

Judith Marks

Yes. We're pleased that the ramp-up, not only is happening, but we're starting to see it in terms of productivity and service quality for the newer ads. As Cristina mentioned, these additions are in kind of high-value markets, as you can imagine, in Europe. In mature economies, specifically Japan as well as in North America. So we're making the investments where we see the high value. Most of these people are not just onboarded, but they've been through our training.

Obviously, apprenticeship periods are different based on different regulatory requirements and different approaches and different. We control and run all of the training and apprenticeships, outside of North America. In North America, our partner and our multi-employer union does the apprenticeships and they work for us as helpers for 4 years. But in the rest of the markets, it happens in a much shorter time span, and we're pleased to see how they've been developing.

We talked about in the second quarter, some of the reasons we had to use subcontractors and other labor to do more of the backlog conversion. That's leveled out now as these people are coming up to speed, and that's going to continue to make an impact going forward. we'll report at quarter 4 where we are in population. And I just want to repeat what Cristina said, in the high-value countries, you'll see it in the countries that are contribute a little less we've obviously been managing that tighter.

So population, we're still on track for adding, but we're obviously managing dynamically places we're adding and places where we don't need as many mechanics. But no issue in terms of recruitment or their learning curve. We're really pleased with where they're coming along.

Operator

Your next question comes from the line of Joe Day with Vertical Research.

Unknown Analyst

I want to start on the service margin side of things, and we'll get more details in a few months. But the crux of the question is the position for service margins with the improvement sequentially in Q3, what that sets up for next year and the ability to grow those year-over-year -- and then just trying to think through some of the moving parts as mod outgrowth presumably continues and the mix headwinds there.

Some nonrepeat of some of the initiatives this year related to the service organization, the degree to which repair growth is still poised to drive solid growth -- and then anything else that you'd be doing on the maintenance side. And so as we combine all those factors, how to think about the prospect for Service margin growth next year.

Cristina Mendez

Joe, this is Cristina. Thanks for the question. Look, at this point, we are not going to provide guide on 27 according to our standard earnings practice, and we remain operationally focused on delivering I can give you some color on what the trends are going. So on the 1 side, we feel very good about revenues. We see a sustained growth in repair and modernization based on the demand, based on the acceleration of the resources available, plus also the price flowing through. and that's expected to continue.

From a profit standpoint, the investments we are placing this year in Service remain in the base. This is the right thing to do. We see the quality improving and the retention improvement will lack and that will come over time.

Productivity, we see it stable and assuming that it continues to improve, that should be a better compare next year and we continue working on that as we ramp up the execution of our growing backlog. Price is also going to build up, and we are very pleased with the execution of our micro pricing initiatives. And we only need to consider the incentive compensation depending on where we landing here.

Unknown Analyst

Got it. And then just specifically within Mod and the margins there, could you talk about some of the opportunities that you're looking at moving forward, thinking about why it's a mix headwind, just the ability that you might have to move the needle on the mod margins themselves, how much of that is volume leverage, which is obviously already good. versus other factors that you're working on?

Judith Marks

Congrats on your new role, too. Listen, yes, you bet. In MoD, we believe we will get operating leverage and actually, this quarter, we saw -- it was a significant step-up for us versus the second quarter. I'm not going to go into exact numbers. We've said we want to get to 10% this quarter was the closest we've gotten in a while, and I think that shows the operating leverage.

The operating leverage comes from volume but it also comes from our ability to drive supply chain efficiencies as we put MOD across the same line as New Equipment. It comes from the ability to get productivity in mod installation when we're doing more and more installations. So there's all these add-on mod benefits that will come. We're not going to stop when we get to 10% -- but where we -- from where we started, that was a significant medium-term goal for us, and we should be able to achieve that in the medium term, if not improve it.

Now other opportunities will continue when -- as we continue to develop new modernization packages again, for specialized verticals. But the modernization opportunity is large, both in full modernizations and in partials. We're seeing it across not just every region, but every segment, we're seeing it across resi, we're seeing it across office. We're seeing it across commercial. We're seeing it across infrastructure, so it is the continuing growth signal for the future, and it's got a long run time to go.

So it's on us to optimize for it and to drive volume, to drive productivity and obviously, the control input costs.

Operator

Your next question comes from the line of Rob Wertheimer with Melius Research.

Robert Wertheimer

My question is just on -- you've touched on this, but how are you thinking about the time delay between service quality improvements and improvements in retention churn -- and then just, Judy, just more kind of structurally, do you have any concerns around the price? Is that an issue in any of this kind of lag churn, et cetera? Or is it still clear to you that it's the service quality issues you had a while back.

Judith Marks

It is predominantly a service quality issue, Rob. We don't tend to lose service contracts based on price. It's on responsiveness. It's on the quality of what we're doing. It's showing up when we don't have mandated visits in many countries, but still going doing the entire checklist, and we manage and measure all that with our service quality. So the fact that not only is that improving, but we saw sustained results, we're very pleased with that.

The challenge you face in the lag, and it's hard to give you an exact lag because every contract is different. And if you think about how many service contracts we have, you're talking hundreds of thousands of them. The lag depends on, if you're in the final year and maybe you can't sway a customer that you've improved the service quality enough.

Everywhere else, we're getting great response. The customers I talked to unsolicited, they're giving us feedback that they're really seeing a change. They're finding value in Otis One and our ability to be -- to do preventive maintenance, our ability now to do and to bid this proactive repair so that their elevator doesn't go down, they're really appreciative of that.

And that's a combination of our skilled technicians, making a recommendation at times, that's a combination of us using an AI engine to be able to use the OTIS 1 data and all of the information we have to do proactive proposals and our sales force for delivering that, defending it and showing the value.

So I can't give you a precise retention lag in days or months, but we're going to -- we'll see it. I can tell you that it looks no worse than where we ended or year-end '25, I should say, where we sit today. So we know we've contained it, and now we want to continue to see it grow.

Operator

Your final question comes from the line of Brandon Knutson with Morgan Stanley.

Brandon Knutson

I wanted to start on maintenance and repair. So it grew 4% organically, which is a step down from 6% last quarter despite having more pricing in this quarter, which would imply a sequential decline in volumes? Or something else related to I think mix in churn you've been highlighting.

Can you just give us some more color on that and what's kind of driving this near-term disconnect between the growing service quality index, which you've been highlighting for multiple quarters now. And this kind of slowdown you're seeing in maintenance and repair?

Cristina Mendez

Hi Brandon, this is Cristina. Thanks for the question. So look, on the maintenance side, maintenance grew 3% in Q3 -- in Q2, and now it's 2% in Q3. So the slowdown is related to the performance in retention, and we were transparent in Q2 that retention at that time was down BPY, and that's, of course, a headwind in the maintenance sales growth.

On Repair, we are very pleased with the execution momentum, 9% in the quarter versus 12% in Q2, but we see an ongoing demand on the backlog. And also we have all the resources we need to execute. It's about the calibration of where we put the resources between modernization and repair that can change in a given quarter. But overall, the trend is really positive.

Brandon Knutson

Okay. And then switching to modernization. Another strong organic quarter of 20% there. It sounded like last quarter to hit the 24% growth rate, there were some kind of operating inefficiencies in terms of trying to get the labor to hit that organic growth number. Are those still a factor in this quarter? Or have you been able to improve productivity enough where you can maintain regular margin rate there and also this high growth rate we're seeing?

Judith Marks

Yes, Brandon, we've been ramping up to be ready to perform and do the conversion out of the backlog on mod. And as I shared a few minutes ago, we did see sequential margin improvement in mod this quarter that we're very pleased with. So we used less subcontractor backfill is probably the best way I can call it in certain parts of the world. We've moved Otis resources and now they're in region where they need to be to do additional mod work -- so that should continue to eliminate over time that issue we saw in the second quarter.

Operator

We have reached the end of the Q&A session. I will now -- I will now turn the call back to Judy Marks for closing comments.

Judith Marks

Thank you, Sarah, and thank you, everyone, for your questions. Looking forward, we remain focused on delivering on our commitments to the remainder of 2026 as we diligently execute on our strategy. Thank you for joining us today, and please stay safe and well.

Operator

This concludes today's call. Thank you for attending. You may now disconnect.