Anurag Maheshwari
Executive Vice President and Chief Financial Officer at Otis Worldwide
Thank you, Judy, and good morning, everyone. Starting with fourth quarter results on Slide six. For the fourth quarter, reported sales of $3.4 billion were down 3.6%. Organic sales grew for the ninth consecutive quarter and growth accelerated to 6%, our best performance of the year, with mid-single-digit growth in New Equipment and high single-digit growth in Service. Adjusted operating profit, excluding a $49 million forex headwind, increased $39 million, with constant currency growth in both segments.
Strong service performance, especially on volume and price, was partially offset by commodities and mix headwinds in New Equipment as well as higher corporate costs. Adjusted SG&A expense for the quarter and the year improved 80 basis points as a percentage of sales as we remain vigilant on structural cost reduction and cost containment to help mitigate the macro headwinds we have faced.
At the same time, we are committed to growing the business and R&D and strategic investments as a percent of sales remained about flat. Adjusted EPS grew 4% or $0.03 in the quarter, driven by operational growth of $0.07. This strong operational growth, alongside the accretion from Zardoya and $850 million of share repurchases, more than offset the $0.08 headwind from forex. While the fourth quarter free cash flow conversion was strong at 145%, our full-year free cash flow came in at $1.45 billion or 115% of net income lighter than we had anticipated as we built $65 million of inventory to mitigate supply chain challenges and support backlog conversion going into '23.
Moving to New Equipment performance on Slide 7. Otis New Equipment orders in the quarter increased 4%, with EMEA and Asia Pacific up high-single digits and China orders returning to growth, up mid-single digits, which more than offset a modest decline in the Americas. Overall, with better-than-expected orders growth in the quarter, we finished the year with a New Equipment adjusted backlog up 11% at constant currency, with growth in all regions, including notably in China.
Pricing on New Equipment orders in the quarter increased 3 points, led by the Americas with solid performance in EMEA and APAC. In China, we have been roughly price/cost neutral throughout '22 as commodity inflation peaked [Phonetic] and we continue to drive productivity to offset pricing pressure in the market.
Fourth quarter New Equipment sales of $1.5 billion returned to growth, driven by over 10% both in the Americas, EMEA and Asia Pacific, with EMEA outperforming our prior expectations. China sales declined at a lower rate than what we saw in the middle of the year as the team navigated well through post lockdown COVID outbreaks to execute on the backlog. Overall, strong execution by the team returned to sales growth in the fourth quarter in New Equipment.
Operating profit margins were roughly flat for the quarter. The benefit of higher volume, strong productivity and cost containment nearly mitigated the approximately $25 million in headwinds from commodities and forex.
Now turning to Service segment performance on Slide 8. We saw an acceleration in our portfolio growth to over 4%, with every region adding to the portfolio this year. With another year of excellent high-teens growth in China and low-single digit growth elsewhere, our portfolio now is about 2.2 million units. Globally, our recaptures more than offset our cancellations for the year with conversions as a growth driver.
Additional details on our portfolio growth in 2022 and drivers for future growth can be found in the appendix. Modernization orders were also a highlight, up 13%, with growth in all regions, including some major project bookings in the Americas and Asia Pacific and continued strength from our MOD package offerings. Our modernization backlog is up 7% versus the prior year, giving us good line of sight for growth in '23.
Moving on to Service sales. We delivered another quarter of strong organic sales growth, up almost 7%, with growth in all lines of business. Maintenance pricing, excluding the impact of mix and churn, came in as expected, up about 3 points for the year, contributing approximately 1 point to overall revenue growth. Organic modernization sales grew 8.8%. And similar to last quarter, we saw broad growth across regions, including double-digit growth in both Americas and Asia Pacific.
We finished with our best service margin expansion for the year, up 70 basis points in the quarter. Adjusted operating profit, excluding $42 million of forex headwind, was up $51 million as higher volume, favorable pricing and productivity were partially offset by our annual wage increases. We have now delivered 12 consecutive quarters of service margin expansion, with margins increasing roughly 200 basis points over the past three years.
Slide nine lays out the full year 2022 adjusted EPS bridge. Strong operational execution drove $0.39 of constant currency EPS growth, which mitigated $0.18 in commodity headwinds, leading to operating profit growth of $124 million or $0.21. Through our capital allocation strategy, including the accretion from the Zardoya transaction and share repurchase of $850 million and optimizing our tax rate, we were able to offset $0.26 in forex headwinds. Overall, strong operational performance led to EPS growth of 7.5% or $0.22.
We finished the year with 2022 adjusted tax rate of 26.5%, a 220 basis-point improvement versus '21, which contributed to EPS growth, both in the quarter and for the full year. Overall, the team performed well throughout '22 by executing on the controllables, which helps us to build a strong backlog, grow organic sales, expand margin by 30 basis points and returned $1.3 billion to shareholders.
As we look ahead to 2023, the New Equipment outlook is on Slide 10. Over the past few years, we have delivered strong orders globally from a combination of market growth, our share gain initiatives and incremental pricing actions. This has resulted in a robust multi-year backlog, giving us good line of sight for the next couple of years.
In 2023, we expect New Equipment organic sales to grow between 3% to 5%, with Americas and EMEA up mid-single digits and Asia growing low-single digits. Asia Pacific is expected to be up at least mid-single digits. And though the backlog in China is up 2 points, we expect sales to be about flat, reflecting pressure on the book and ship business from expected market declines in the first half.
We expect New Equipment profit margins to be flat to up 40 basis points. We expect roughly $100 million of tailwinds from volume, pricing, productivity and commodities. This will be partially offset by unfavorable regional and project mix, and some snapback in SG&A expense due to 2022 cost containment actions. We will continue to drive strong productivity on both material and installation and project closeouts as the year progresses to drive outperformance.
Turning to our Service outlook on Slide 11. Starting with sales, we expect another solid year in Service and anticipate organic sales increasing 5% to 7%. Maintenance and repair organic sales are expected to grow 4.5% to 6.5%, driven by maintenance portfolio growth, pricing and low to mid-single-digit repair growth after two strong years of COVID-related recovery. We expect more than 1 point of pricing after adjusting for mix and churn.
For modernization, we anticipate organic sales of mid- to high-single digits as we execute on a solid backlog and drive our book and ship business from new product launches and focus on sales force specialization.
Turning to profit. We expect roughly 50 basis points of margin expansion. Headwinds from annual wage inflation will be more than offset by volume, price and productivity, similar drivers to 2022.
Turning to Slide 12 for the 2023 adjusted EPS bridge. We are expecting $3.35 to $3.50 in adjusted EPS, driven by $0.23 to $0.31 of operating profit growth. We expect to offset $0.09 of forex headwind at the midpoint and a modest increase in interest expense through a lower share count, $0.04 of remaining Zardoya accretion and continued optimization of our tax rate. We plan to complete $600 million to $800 million in share repurchases during the year.
For cadence, we expect strong EPS growth in the second half of the year, while the first half remains roughly flat. We see the bulk of the FX headwind, post lockdown COVID impact in China and a modest supply chain overhang in New Equipment in the first quarter. We anticipate stronger growth sequentially thereafter, including better performance in China in the second half of the year.
Overall, we anticipate Otis organic sales growth of 4% to 6%, with approximately 20 basis points to 30 basis points of margin expansion, leading to 6% to 10% EPS growth. And on cash, we expect to generate $1.5 billion to $1.55 billion in free cash flow in '23, a 110% conversion of GAAP net income at the midpoint.
This outlook demonstrates another year of consistent and solid operational execution, as we continue to mitigate macro challenges and create meaningful shareholder value.
With that, I will request Norma to please open the line for questions.
