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How was United Technologies’s Otis unit performance in 2014?

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About the Otis segment

United Technologies’s (UTX) Building and Industrial Systems segment is a combination of Otis and United Technologies’s Climate segments. The Otis unit designs, manufactures, and installs its passenger and freight elevators, as well as a broad line of escalators and moving walkways. To learn more about this segment, please read United Technologies’s largest business segment.

UTX forms a 8.4% holding of the iShares US Aerospace & Defense ETF (ITA) and competes with companies like Raytheon (RTN), Rockwell Collins, and Triumph Group (TGI).

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Otis’s financial performance

UTX’s Otis unit saw an improvement of 5% year-over-year (or YoY) in its revenues, backed by double-digit growth in new equipment primarily driven by China and the US. The total sales growth stood at a strong 12%, which included 16% growth in Asia. This was particularly due to a large order in Singapore—the Thomson-East Coast Mass Transit Project Line—and similar growth in the US.

However, foreign currency fluctuations adversely affected this growth. The segment also witnessed a strong operating profit of 7% at constant currency and successfully ended the year with an order backlog up about 13% YoY.

2015 expectations

The Otis unit is heavily dependent on foreign sales and is affected by forex fluctuations. The Otis segment is expected to grow steadily in the next year, driven by growth in key regions such as the US and China. China, whose sales represent ~6% of total UTX sales, expects to see moderate economic output growth, which should be enough to outpace global GDP. The Chinese economy has seen accelerating pressure on home prices during the last month, but with a healthy backlog, the company expects to see 7%–8% growth in Otis China.

In the US, UTX experienced a regrowth in market share, with sales growth of 40% in the last year. The company expects to see continued growth in this area, with a healthy backlog for the next couple of years.

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