Good day, ladies and gentlemen. Welcome to the General Electric first quarter 2015 earnings conference call. At this time, all participants are in a listen-only mode. My name is Jeanette. I will be your conference coordinator today. If at any time during the call you require assistance, please press star followed by zero. The conference coordinator will be happy to assist you. If you experience issues with the slides refreshing, or there appears to be delays in the slide advancement, please hit F5 on your keyboard to refresh. As a reminder, the conference is being recorded. I would now like to turn the program over to your host for today's conference, Matt Cribbins, Vice President of Investor Communications. Please proceed.
Thank you. Good morning. Welcome everyone. We are pleased to host today's first quarter 2015 earnings webcast. Regarding the materials for this webcast, we issued the press release, presentation, and supplemental earlier this morning on our website at www.ge.com/investor. As a reminder, elements of this presentation are forward-looking and are based on our best view of the world and our businesses as we see them today. Those elements can change as the world changes. Please interpret them in that light. For today's webcast, we have our Chairman and CEO, Jeff Immelt, and our Senior Vice President and CFO, Jeff Bornstein. I'd like to turn it over to our Chairman and CEO, Jeff Immelt.
Thanks, Matt. GE had a good quarter in a slow growth and volatile environment. Just to give you an economic read from the world of GE, we see the U.S. getting a little bit better every day. Europe is slightly improving. China remains good for GE. Resource-rich markets are mixed. We expect to have positive revenue in places like the Middle East, Latin America, and Africa. Russia and Australia will be tough. We're seeing the world that we planned for. Industrial EPS grew by 14%, despite having $0.03 of uncovered restructuring. Operating EPS was $0.31, excluding the impact of the capital announcement. Organically, orders were up 1%. Revenue grew 3%. Industrial segment profit grew by 9%, or 12% organically, with margins up 120 basis points. GE Oil & Gas had a solid first quarter. Organically, they were positive in orders, with revenue flat.
Profit was up 11% organically. The GE Oil & Gas market remains volatile, with some segments under pressure. Our diversified GE Oil & Gas platforms delivered in the first quarter. We're on track for our targets in 2015. We're running the company well. We spent a bit of time last week discussing capital allocation. I would only reiterate that we are in full execution of our GE Capital plan. All of our CFOA targets and capital allocation goals are in line with our framework. We remain on track for industrial EPS of $1.10 to $1.20. Orders were up 1% organically. We finished the quarter with $263 billion of backlog. GE Oil & Gas orders were up 2% organically as they closed a few big subsea deals. Orders pricing declined slightly. Service orders were up 3% organically with broad-based strength. Aviation spares grew by 31% and remain robust.
We remain on track for strong orders and Predictivity in 2015. New install orders for healthcare IT grew substantially in the first quarter. We launched Asset Performance Management in the manufacturing space. Orders for transportation software and solutions are planned to be up 50% for the year, we expect consistent growth for wind power up and HEPs for the year. We saw some encouraging signs in the quarter. Aviation remains very strong, recording $800 million on LEAP orders. The LEAP has won 79% of all NEO and MAX orders. LEAP engines for NEO and C919 are flying, the LEAP for Boeing is in the test plane and flying soon. The engine is ahead of schedule. The LEAP engine has been one of our most successful product launches in history. Healthcare equipment orders grew by 5% in the U.S.
Transportation continued to record global wins, they received a $350 million order in Angola. Power conversion grew orders by 10%, we have solid orders performance in China, up 54%. We expected power to have tough comps in the first quarter. In addition, they saw several orders slip into the second quarter. Overall, we see good demand for units in North America, Japan, Saudi, North Africa, Mexico, and Brazil, we anticipate a strong power orders recovery in the second quarter. Our orders support our organic growth target for the year. Our businesses executed well in the quarter. Organic revenue growth was up 3%. Geographic growth is balanced. U.S. was up 2%, growth markets are up 6%. We saw strength in China, up 6%, Middle East up 19%, Africa up 11%, and Latin America up 13%.
From a business standpoint, we had organic growth in six of seven segments, we have forecast organic growth of up 2%-5% and remain on track for that. Margins continue to be a good story, with growth of 120 basis points. We've targeted 50 basis points of gross margin expansion for the year, we hit 90 basis points in the first quarter. We had favorable mix, value gap, and productivity in the quarter. Meanwhile, simplification continues to drive good results, we're seeing more benefits ahead. One of the goals for 2015 is to expand margins in both equipment and service. We grew equipment margins by 120 basis points and service by 70 basis points in the quarter. We're making progress on margins as a company. Industrial CFOA was $900 million. It was less than expected.
Our shortfall was driven by some aviation supply chain disruptions and power and water orders timing. We will recover this in the second quarter. At the half, we plan on CFOA to be significantly higher than a year ago, we're on track for our CFOA goals for the year. Our balance sheet remains quite strong. In the future, we will continue to look at ways to achieve a more efficient balance sheet. From a capital allocation standpoint, Alstom remains on track for a second-half close. We always expected that this deal would get a second look in the U.S. and Europe. Alstom is impacted by similar volatile market dynamics as GE, we continue to see this as a good strategic and financial fit for us, we intend on completing a deal that is good for investors. Now over to Jeff.
Thanks, Jeff. I'll start with the first quarter summary. As we discussed last week, we took a significant day one charge related to the exit of the non-vertical assets of GE Capital. On this page, I will start with the underlying financial performance of the company, excluding those charges, and then on the next page, I'll walk you back to our reported financials. We had revenues of $33.1 billion, which were down 3% in the quarter, driven by GE Capital, which was down 7%. Industrial sales of $23.8 billion were down 1%. Operating earnings of $3.1 billion were down 5% on lower GE Capital earnings. Operating earnings per share of $0.31 were down 6%, with Industrial EPS up 14% and GE Capital EPS down 21%. Continuing EPS of $0.27 includes the impact of non-operating pension, and net EPS includes the impact of discontinued operations.
As Jeff said, CFOA for the quarter was $1.3 billion. We had industrial CFOA of $900 million and received $450 million of dividends from expectations driven by timing on progress collections, particularly in power and water, and the impact of an aviation supply chain issue on inventory. These timing issues will reverse in the second and third quarter, and our expectation is that the industrial cash flow will be stronger in 2Q and will be up substantially for the first half versus last year. The GE Capital exit significantly impacts our tax rates for the quarter. As a result, we're providing both the reported tax provisions and tax rates on the bottom left side of the chart. The GE tax rate for the quarter was 23%, in line with guidance we provided.
The reported GE Capital tax rate is not meaningful, as the charges to shrink the company caused there to be a $6.2 billion tax expense, while there is a significant pre-tax loss. As we noted previously, GE Capital will have a higher tax rate going forward, and we expect variability in the tax rate as we transition the business through the next few years. On the right side, you can see the segment results. Industrial segment revenues were down 1% reported and up 3% organically, reflecting about four points of headwind from foreign exchange. Foreign exchange was approximately $940 million drag on Industrial segment revenue and about $120 million impact on op profit. Despite this headwind, Industrial segment operating profit was up 9%. GE Capital earnings were down 21%, primarily driven by lower Synchrony earnings due to the minority interest and lower assets.
I'll cover the dynamics of each of the segments in a couple of pages, but first, I want to walk these results to our reported financials. Starting with the first column on the left and working down, as we said, Industrial operating earnings were $1.6 billion, up 14%, and GE Capital earnings were $1.5 billion for total operating earnings of $3.1 billion. Including non-operating pension, continuing earnings were $2.7 billion. We had an approximately $80 million benefit in discontinued operations associated with the sale of our consumer mortgage business in Australia to bring net earnings to $2.8 billion. The next column is the impact of the GE Capital exit announcement, as we reviewed with you last week. As we discussed, we took a $14 billion charge associated with classifying businesses and assets as held for sale and a $6 billion tax charge.
We also took a $2.3 billion disc ops charge, principally reflecting the real estate transaction. After adjusting first quarter operations for these items, the reported amounts are shown in the third column. $2.8 billion of operations net earnings offset by $16.4 billion of GE Capital charges works to the reported $13.6 billion net earnings loss for the first quarter, or a loss of $1.35 a share. As we move through the execution of the plan we shared with you last week, there'll be adjustments, and we will continue to keep you updated on progress and the impact of those actions. On other items, we don't have a long list this quarter. We had $0.03 related to ongoing industrial restructuring and other items as we continue to take actions to improve the cost structure of the company.
This was $422 million on a pre-tax basis, with about a third of that related to restructuring oil and gas. As we discussed before, we're taking aggressive actions to reduce our cost footprint, given the challenging environment, and Lorenzo and the team are laser-focused on execution. For the year, we'll continue to execute on restructuring projects with urgency. As you're aware, we are expecting some gains this year from appliances and signaling transactions. In the profile on the bottom of the page, we've assumed an appliance gain in the second quarter and a signaling gain in the second half, but both are subject to regulatory approval. Although there will be quarterly variability in gains and restructuring timing, we expect gains to equal restructuring for the year on an EPS basis. I'll give an update on Power and Water.
Orders for the quarter were $4.5 billion, were down 21%, driven by equipment orders down 29% and services down 15%. Orders were lighter than expected due to financing delays and timing of agreements, but not competitive losses. For example, we signed a deal for two 7F gas turbines this week that we expected to sign in the first quarter. Our framework for wind and thermal orders has not changed for the year. We expect second quarter orders to be up double digits. In the first quarter, we booked 21 gas turbines versus 31 a year ago and 376 wind turbines versus 422 turbines in the first quarter of 2014. In terms of H-class technology, we booked another order for a 9HA in Latin America, and this brings the backlog to 16 units.
In addition, we've been technically selected on an additional 37 units and are bidding an incremental 50 units beyond that. Distributed power equipment orders were down 53%, driven by nine fewer turbines. We expect distributed power turbines orders to be roughly flat for the year. Gas engine orders were lower by 39% in the quarter, driven by softer demand and gas compression. Overall, DPE will continue to be soft for the year. Service orders were down 15%, with PTS down 20%, driven by no repeat of a large upgrade in Japan a year ago and lower new unit installs. AGP orders were 16, down one year-over-year. No change in outlook for AGPs or services for the total year. Revenue of $5.7 billion was higher by 4%, but was up 9% ex foreign exchange. Equipment revenues were up 1% on very strong thermal volume.
We shipped 39 gas turbines versus 17 a year ago. That was partially offset by distributed power down 37% and renewables down 30% on lower unit shipments of 15 and 174 respectively. Service revenues were higher by 7%, driven by higher upgrades, including AGP upgrades, 21 versus 17 a year ago. Operating profit of $871 million was down 2%, that's flat ex foreign exchange, driven by higher volume offset by negative productivity in supply chain and engineering associated with the H Ramp and negative product mix due to lower distributed power. Value gap in the quarter was a positive $12 million. Our profit margins were down 90 basis points in the quarter. We remain on track with the outlook we provided, and we expect 100 to 105 gas turbine orders and shipments this year with a good pipeline of activity.
We still expect wind shipments of around 3,000 to 3,200 turbines. AGP upgrades remain on track, and distributed power will remain pressured throughout the year. Next, I'll cover Oil & Gas. Oil & Gas orders of $4.3 billion were down 6% reported, but up 2% organically. Equipment orders of $2.2 billion were down 10%, flat organically. Surface orders were down 27% on weak North American activity, and TMS orders were down 23% with no repeat of two large LNG orders we took in the first quarter of last year. It was still a decent orders quarter for TMS, which booked more than $700 million of new orders in the quarter. Subsea and drilling orders were up 74% on large deals we booked in Ghana and Brazil. Service orders of $2.1 billion were down 3% but up 4% organically.
Surface was lower by 21%, and TMS was down 8%, largely due to foreign exchange. Subsea was strong, up 21%. M&C was down 1% organically. Revenues of just under $4 billion were 8% reported. Reported negative V% includes seven points of foreign exchange and one point of disposition. Equipment revenues were down 13%, with TMS down 9% reported, but up 22% ex foreign exchange, and Subsea down 8% reported, but up 6% ex exchange. M&C was down 8% organically in the quarter, and service revenues were down 2% reported, but up 4% organic, with surface down 23% and M&C up 11% organically. Operating profit was up 11% organically, down 3% reported, driven by negative FX, offset by strong productivity on both base cost and product and service cost. Price was a $5 million drag in the first quarter, but the business delivered positive value gap.
Margins improved 50 basis points reported and were 120 basis points better ex the impact of exchange on earnings. This will be a challenging year in Oil & Gas, but the team has been aggressive on remaking the cost structure of the business, and we believe that we remain within the scenarios that supported our total year industrial guidance of a $1.10-$1.20 a share. Next, I'll cover Aviation. Air travel continues to be very robust. Global passenger kilometers grew 5.3% through February 2015 versus the same period last year, with the Middle East up 8.8%, Asia Pacific up 7.3%. Through February, freight traffic grew 7.5% compared with a year ago, with very strong double-digit growth in the Middle East and Asia Pacific. Orders in the quarter of $7.5 billion were up 36%.
Equipment orders of $3.9 billion were up 64% on higher commercial engine orders of $3.3 billion, up over 2 times versus prior year. This was driven by $1.2 billion of GE90 engine orders, up 10 times versus last year from Kuwait Airways, Emirates, and includes a GE9X order for Cathay. GEnx received $360 million in orders, up 3 times, and we also recorded $800 million of orders for LEAP, up 3 times. Our total win rate for the LEAP since program launch for the next gen narrow body aircraft is 79%. Commercial engine backlog was up 35% year-over-year. Military equipment orders were down 61%, driven by no repeat of 2 large orders from Sikorsky and Qatar Air Force from the first quarter of last year, as expected.
Service orders were up 14% on strong commercial spare parts, which were up 31% at $38.9 million a day. Military spares were down 11%. Revenues of $5.7 billion were down 2%. Equipment revenues were down 8%, with commercial equipment revenue down 1% on lower GEnx shipments. We shipped 19 fewer units than last year, 51 versus 70, and 29 less units than our plan as a result of a supply chain disruption. Military equipment revenue was down 32% on lower shipments. Service revenue was up 4%, with commercial spare parts up 28% and military services up 3%. Op profit was up 18% on very strong value gap, variable cost productivity, and favorable GEnx mix, partially offset by lower volume and higher IR&D. Margins improved 390 basis points in the quarter. The impact of the lower GEnx shipments improved the margin rate by about 90 basis points.
This is net of some cost to remediate the disruption. We're working the issue, and we expect to ship most of the delayed units in 2Q and be back on plan for the full year of 275 to 300 GEnx units. Aviation had another strong quarter, growing equipment and service backlog by 23% and 9% respectively. The business continues to execute on new technology introductions, service offerings, and cost out. Aviation could perform better than we outlined at the December outlook meeting. Healthcare orders of $4.2 billion were down 1% but up 4% excluding the impact of foreign exchange. We saw continued growth in the U.S., up 5%. Europe was down 4% but up 11% ex-FX. Japan was down 18%, down 6% ex-FX. The Middle East was down 43%, driven by Saudi. China was down 4%.
Healthcare system orders were down 5%, flat excluding the impact of foreign exchange. U.S. imaging and ultrasound was up 7%, with strong growth in MR up 41% in the quarter, partially driven by the new PET/MR released in December. This was offset by softer orders in Japan, Russia, and the Middle East. Life science orders were up 10%, up 17% excluding foreign exchange, driven by strong bioprocess orders. This was offset with core imaging down 3% and services. Revenues of $4.1 billion were down 3% but up 2% ex foreign exchange. Healthcare system revenues were down 6%, flat organically. Life science revenues were up 4%. Operating profit was up 3%, with 80 basis points of margin expansion driven by strong cost execution, partially offset by lower price. Looking forward, we expect similar market dynamics.
We believe we're gaining share in key modalities in the U.S. We expect the market to continue to improve. While China has slowed, we expect orders growth for the remainder of the year in China. Life science growth will persist. The business team continues to execute on its cost-down programs. In transportation, North American car loads were up 1.8%, with intermodal traffic up 2.1%, which was impacted by the West Coast port strike. Commodities have seen broad-based increases, with agriculture up 4.6% and chemicals and petroleum products up 3.2%. Coal volumes were down 2.5% in the quarter. Transportation orders were down 38%, with equipment orders down 56%. Services were higher by 13%. Equipment orders were lower, driven by locomotives, primarily due to not repeating the large South Africa deal we had in the first quarter of last year.
Revenues in the quarter were up 7% driven by strong equipment growth. We shipped 215 locomotives in the quarter versus 178 a year earlier. Overall, mining continues to be soft, down 23%. Operating profit in the quarter was up 11% on higher locomotive volume, material deflation, and cost productivity. Margins in the quarter expanded by 70 basis points. We now have 16 pre-production Tier 4 units out with our customers running on the rails. They are performing in actual operating conditions as part of our validation process. We had about 1,200 Tier 4 locomotives in backlog at the end of the first quarter of 2015. We expect to ship about half those this year. In energy management, orders of $2.1 billion were down 3% and up 2% organically. Power conversion orders were up 10% in the quarter.
Industrial solutions was up 4%. Digital energy was down 38% from no repeat of a large domestic meter order from last year. Power conversion saw strong growth in the renewables vertical, up two times on solar inverters. The marine vertical was up 15% on a large Canadian propulsion dynamic positioning deal in Canada, offset partially by softer oil and gas orders. Backlog for our energy management business grew 3%. Revenues were up 1% and up 8% organically, driven by foreign exchange, with power conversion up 6%. Digital energy and industrial systems were both about flat. Op profit was $28 million, up from $5 million last year on a reported basis. The business continues to benefit from restructuring with strong base cost productivity driven by SG&A reductions and positive value gap, offset by unfavorable foreign exchange. Margin rates in the quarter were up 140 basis points.
We expect program execution and margin rate improvement to continue throughout 2015. Finally, appliances and lighting. Revenue in the quarter was up 5%. Appliance revenues were up 8% driven by strong volume. Industry core units were flat, with retail down 1% and contract up 4%. The industry volume was well below the first quarter expectation of plus 8% due to the harsh weather across the U.S. We believe GE increased our share by two points in the first quarter. Lighting revenues were down 3% on lower traditional product demand, which was down 18%. This was partially offset by continued strong LED performance, which grew 76% in the quarter. LED now makes up 30-plus % of lighting revenues. That's up from 17% of lighting revenues in the first quarter of 2014. Op profit in the quarter was $103 million. Now, GE Capital.
Before we start with the GE Capital results, I'd just like to take a moment and highlight the incredible work done by Keith and the GE Capital team. Keith led an enormous and complicated effort in a very challenging window of time to get the company to this very important strategic pivot. This is a transformational change for our company that will create real value for investors long term. As I've covered, the impact of last week's announcement is reflected in GE Capital's first quarter reported financials. On the page, we have provided a walk, starting with the earnings from our vertical businesses, which generated $352 million for the quarter. Operating earnings from the remainder of our businesses in continuing operations amounted to $1.1 billion, which was more than offset by $14 billion day-one accounting adjustments related to last week's announcement.
Earnings from continuing operations amounted to a net loss of $12.5 billion. Discontinued operations generated additional losses of $2.2 billion, which reflect the charges associated with our commercial real estate business. Overall, GE Capital reported a $14.7 billion loss, including $6 billion of tax expenses. We ended the quarter at $303 billion of ENI, excluding liquidity. Our liquidity levels remain strong, and we ended the quarter at $76 billion, including $14 billion attributable to Synchrony. Our commercial paper program remained at $25 billion, and we had $8 billion of long-term debt issuance for the quarter. As discussed last week, we do not anticipate additional issuances over the next five years, and we expect GE Capital CP balance to decrease to $5 billion by the end of the year. Starting this quarter, we are transitioning the capital adequacy reporting from Basel I to Basel III, in line with industry practice.
Our Basel III Tier 1 common ratio was 10.6%, inclusive of the day-one charges. We expect this ratio to improve as we dispose of risk-weighted assets over the course of the year. As I mentioned last Friday, we will operate through the transition in a safe and sound manner, working with our regulators in determining the appropriate capital levels. Going forward, the team will be very focused on executing the portfolio transformation. As we discussed last week, we have signed deals on close to 50% of the planned ENI reduction for the year, and we are receiving very strong inbound interest on many of our portfolios since the discussion last week. We are prioritizing transaction in a way that allows us to maximize franchise value. As I said last week, we will be very transparent as we execute through this process.
Overall, Keith and the GE Capital team delivered a strong operational quarter in line with our prior guidance and are now fully focused on delivering on the portfolio transformation that we shared with you last week. With that, I'll turn it back to Jeff.
Thanks, Jeff. We remain on track for our 2015 operating framework, but we will adjust our guidance milestones to reflect last week's announcement on capital. Industrial EPS is on track for $1.10-$1.20, and we're running our businesses to the high end of that range. We're generating solid organic growth and margin expansion. Corporate costs are being well managed with gains equal to restructuring, and Oil & Gas is performing to our expectations. We continue to invest in industrial growth. Between research and development, investment in plant equipment and information technology, and the potential for bolt-on industrial M&A, we'll invest $10 billion-$15 billion each year in our industrial growth. We can do this and still return significant capital to investors. The GE Capital verticals are tracking to $0.15 per share. As Jeff said, we're focused on the verticals, and we'll keep them top of mind.
We've set a target of $90 billion in asset sales. This is part of our guidance. We already have approximately 50% announced and have a robust pipeline to achieve this by year-end. We will update this at EPG. Free cash flow remains on track to $12 billion-$15 billion. Dispositions and CFOA are on track, and we expect GE Capital to dividend between $500 million and $7 billion, in line with what we talked about last week. We will update this as we go through the year. We will continue to drive investor-friendly capital allocation. The dividend remains a top priority. We're still expecting the Synchrony split to return $20 billion to you in the form of a share exchange. As you saw last week, our board has authorized a $50 billion buyback based on the proceeds from the GE Capital sale.
Between Synchrony, the buyback, and dividends, we can return $90 billion to investors over the next few years. The company is executing well operationally and strategically. Our compensation plans have aligned us with investors, and we expect to have a solid second quarter and total year. Matt, now back to you for some questions.
Great. Thanks, Jeff. I will now turn it over to the operator to open it up for questions.
Ladies and gentlemen, if you wish to ask a question, please press star one on your telephone. If your question has been answered or you wish to withdraw your question, please press the pound sign or the hash key. Our first question comes from Scott Davis with Barclays.
Hi, guys. Good morning.
Hey, Scott.
I was intrigued by a couple of comments that you made. Jeff Bornstein, the comment you made on incoming interest into the asset sales. I think the question really is give us a sense of your availability to sell those assets quicker than you laid out in your timetable. Meaning, are the books out? If the sovereign showed up tomorrow, could you hand them the keys and a few months later you can get the deal done? Is there some gating factors that could limit the timing?
Well, I would say, Scott.
The amount of inbound interest has been incredible in both non-banks and banks, both domestic and international interest. I think that we're buoyed by the demand that we see so far. It really depends on the platform, and the type of transaction we're talking about. We are organized to be able to do this as quickly as possible. Our goal is to monetize these assets, these platforms, as fast as we can. There will be some gating challenges on getting ourselves in a position to, as you described, to get all the books together, et cetera. We're going to go after this as fast as humanly possible. I think the positive point here is the level of interest is really quite incredible.
Okay. That's good. Jeff Immelt, you made a comment in your prepared remarks about wanting to get to an efficient balance sheet or something in that regard, I hadn't really heard you mention it in those terms before. How do you think of an efficient industrial balance sheet? Is there some sort of a range of leverage or some way to measure that?
I think, Scott, in the near term, I think you have to think about us as safe and secure and marching through this process with GE Capital and things like that. Over the long term, I think our desire is to have an industrial-looking balance sheet. How fast that goes, again, depends on Jeff's answer earlier on GE Capital assets and things like that. Our goal is, over time, to have investors look at GE as an industrial company and have a balance sheet that lines up more or less with our peers in that space.
Okay. Last, just a cleanup item. What impact on margins was currency in the quarter? Did you have a benefit from hedges in the margin improvement?
No, actually, FX was a drag in margins in the quarter.
Okay.
As I talked about in the Industrial Segment margin, we had about $120 million FX drag, and hedges were a very small offset to the total impact. We actually had negative impacts all in.
Okay. Very helpful. Thanks, guys.
Great, Scott. Thanks.
Our next question comes from Steven Winoker of Bernstein.
Thanks, good morning.
Hey, Steve.
Can we go to that $1.10 to $1.20 framework? I heard you say that you're running the businesses to the high end of that range. Maybe an idea of what does that mean? Also, can you just remind us how much of that is Alstom?
Again, Steve, the way to think about that is we have an AEIP plan, a compensation plan, that lines up with how the internal business plans work. I think we talked to you guys, Steve, at the year-end meeting and at EPG about the comp plan we have the team to. When you look at the AEIP plan that frames compensation for the leadership team, that's what I refer to. It's really the same comment I made in January about how we're running the place. I think with Alstom, Steve, we're counting on $0.01 for the year. Not really much impact in 2015, and more so in 2016.
Maybe just sticking on that then, maybe this is to Jeff Bornstein on this one. If we just walked our way from, again, this $0.31, given the trending of oil and gas, I think, having just a little challenge given the weakness we're seeing in other companies bringing down guidance in oil and gas and related areas, what gives you guys the confidence of getting to that over the next three quarters and the more than sequential second half ramp and things like that?
Well, listen, I think that the scenarios that we shared with you at year-end, we updated again in the first quarter on the fourth quarter call. We evaluated a number of different scenarios around oil and gas. As we communicated to you, all of those scenarios we felt were within the range for $1.10 or $1.20. Lorenzo and the team are executing like crazy on a substantial cost plan. They are right on track, actually slightly ahead of schedule. They're going to take out close to $600 million of cost this year, both base cost and product and service cost.
When we take a look at where we ended here in the first quarter with oil and gas and how we think about the balance in the next 3 quarters, and very importantly, with all the restructuring that we're doing, the benefits of that largely in the 2nd half of the year, we feel like today, based on everything we know, that those scenarios and that guidance we gave you remains intact.
Okay.
Let me add just a little bit to what Jeff said. I think he framed this year well. I think at the quarter, the guys are actually probably a little bit better than what we had anticipated, you see all the volatility in the market, and it's just going to be something we have to continue to evaluate quarter by quarter. At the same time, I think one of the advantages we have at GE is we can look at other businesses that have the potential to do better. Over the context of the company, we've got a framework that we're confident in, even if other scenarios in oil and gas take place. I think that's one of the strengths of GE. You've seen the way aviation got out of the gate and.
You know that some businesses get a chance to provide some upside maybe during the year.
Okay. Just lastly on this topic, the 1.4% order pricing, negative order pricing in oil and gas. Again, how should we think about that in terms of, is there any additional renegotiation or existing backlog happening, or is this new and where are you seeing the weakness on that front?
Yeah. When you look at order pricing, Steve, that 1.4% is almost entirely associated with the Ghana sub-sea order we took.
Okay.
It's not broadly across the portfolio. We have not renegotiated any prices from existing backlog. That's where we are today.
Okay. I'll hand it on. Thanks a lot.
Great, Steve. Thanks.
Our next question comes from Andrew Obin of Bank of America.
Hi. Yes, good morning.
Hey, Andrew.
Yeah, maybe I'll let others ask questions on oil and gas. Let's focus a little bit elsewhere. As I look into 2016, what about renewables and I guess I will touch on oil and gas. What about sub-sea? Because the industry timing on sub-sea suggests that orders will be very strong this year. What does it mean for 2016 in power and water and oil and gas, given the specific regulatory dynamic and industry specific dynamic in these two sub-segments?
I think with renewables, again, what I would say, Andrew, is, we always think about the U.S. in the context of the PTC, and there's nothing we see today that indicates that the PTC is not going to get rolled over in some capacity. That kind of keeps the U.S. at a kind of, let's say, steady state. When you look around the world, you see growth. I think if you look at Brazil, if you look at places in Europe, if you look at even Africa, Middle East, China, we see pretty good growth in wind globally. I think we're thinking we'll do another 3,000 turbines as our current estimate in 2016 as well. There is a shift. It's going to be more international than domestic as we move forward. No question about that.
Yeah.
Roughly the same kind of volume. I think the way to think about sub-sea is on an incoming order standpoint, each project is going to get a ton of scrutiny, whether it's the Ghana project that we signed or Bonga in Nigeria or projects in Australia or things like that. Once a project is going, it's unlikely that it will be stopped. In other words, you already have a fixed cost, and when it gets into the production mode, it's unlikely that it's going to slow down. We still think subsea in 2015 and 2016 are going to be okay within that context.
Just to follow up a little bit shorter term, looking into second quarter, you highlighted some delays in power and water and aviation. If these two segments recover actually into the second quarter, what does it imply for organic industrial growth in the second quarter?
I think at the moment here where we've given you guidance for the year here, we expect organic growth will be 2%-5% for the year. We were at 3% here in the first quarter. I think that's generally the trend we expect to be on throughout the year.
Directionally, they would imply that ex Oil & Gas, there should be some room for acceleration in the rest of the business, right?
Again, we see those segments getting better in the second quarter, but again, we just don't want to do organic revenue things quarter by quarter, Andrew.
Okay, I tried.
We're comfortable in the range, and we'll leave the rest to you.
I tried. Thank you very much.
Thanks.
Our next question comes from Shannon O'Callaghan with UBS.
Good morning, guys.
Hey, Shannon.
Maybe just on the equipment margin improvement, 120 basis points, pretty impressive. Looks like some benefit from mix in the quarter. As we go forward, assuming you can't count on that mix every quarter, value gap, cost productivity, and some of the things Jeff Bornstein, Dan Heintzelman are working on, does that ramp as quickly as sort of 2Q, 3Q, and maybe just a little expectation on how you see that equipment margin playing out through the year?
We expect that the initiatives that the teams have going and that Dan and I are working with the businesses on will gain momentum as we move throughout the year. As you saw on Jeff's page when he walked through the margins, we had 60 basis points of mix. I think what we talked about at year-end when we talked about the year was mix that probably wanted to be, or hopefully would be something more neutral. I would expect us to gain momentum on the cost line and the product service cost line, and we'll see where mix plays out, but I would assume for the year that mix will be roughly neutral.
Any segments so far as you're kind of attacking that cost structure, any segments that you're particularly encouraged by the opportunity you've seen?
I think every single one of these businesses have enormous opportunity. When you look at the first quarter results, particularly around equipment margins, just about every business had improvement, with the exception of power and water and oil and gas. I think it's not unique to any one business. Every one of these businesses has an enormous opportunity to get product and service cost at another level.
Okay, just maybe on Alstom. Jeff, I know you mentioned some of the difficult trends in the market that Alstom would be facing that you are also seeing, obviously. Can you still get to sort of the plan there, even if the markets are a little tougher? Any update in terms of the regulatory process and how some of the concerns of the European Commission around heavy-duty gas turbine concentration might be remedied?
Let me answer the second piece first, Shannon. I would say there's nothing really that's been a big surprise as we go through this. We always thought that there would be a second request or that process would take until the summer. I would say so far nothing really is a surprise. I think on the financials, we still look for a high teens return and $0.16 accretion in 2016. We still feel that is achievable and synergies are quite robust and we like that. The last thing I'd say is, look at the end of the day, just like every deal, we have always reserve as we do these transactions, that we will only do deals that are investor friendly and that achieve good returns.
I think we've established that in this case, and I think we're optimistic about how Alstom fits with GE.
Our next question comes from Julian Mitchell with Credit Suisse.
Hi, thank you.
Hey, Julian.
Hey, just a question on power and water. The services orders were down a decent amount. Sales, though, were up. Maybe give a little bit of color around what's going on in the thermal services business, in particular by region, because it does seem as if the orders are soft at AGP as well, and sales are still okay.
Julian, I'd start with orders were soft year-over-year largely because we had a very large upgrade in Japan last year that we just didn't repeat this year. Secondly, the number of new unit installs that the services business worked on in the quarter were fewer year-over-year. That's most of what we saw in softness in power gen services. AGPs were about flat. We told you we think we'd do about 100 for the year. We'll do 100 for the year. I don't think we're changing any of the outlook there. I don't think there's a broad theme here, even geographically around power gen services.
Our next question comes from Barbara Noverini with Morningstar.
Good morning, everybody.
Morning, Barbara.
Is Predictivity growth tracking your expectations since you spoke about your plans back in the fall? Can you talk about which of your operating segments are driving the most demand for predictive analytics solutions this year?
Yeah. We see, again, I would say 30%-40% growth pretty consistently across the business in software and Predictivity. I just had a review with all the businesses last week, there's a variety of different initiatives. I'd say, clearly, the power and power upgrade, things like PowerUp on the wind turbine side. We've got 10 installs, but really another 100 behind that's quite exciting. As I mentioned, the rail business has got an expectation to grow orders about 50% for the year. We're seeing both from a software and things like Movement Planner side growing. The radiology IT piece is up 13% in terms of new bookings in the quarter, some pretty good activity there. We've kind of launched what we call Asset Performance Management, APM, in oil and gas. We're seeing an original service funnel in that activity.
I'd say macro kind of in the 30%-40% range with strong double digits in each business as we look at software and Predictivity for the year.
Our next question comes from Deane Dray with RBC.
Thank you. Good morning, everyone.
Hey, Deane.
Hey. A couple questions on the aviation side. That spares number being up 31% really jumps out. Do you see changes in airline behavior? Is this coming through because of lower fuel? How sustainable is this through 2015?
You heard the revenue. The volume numbers are pretty good. Revenue passenger miles are very strong. There's no question that most of the forecasts are that the aviation industry globally will probably have its most profitable year in history this year. I think IATA is estimating almost $25 billion of profit. The airlines are, no question, stocking inventory. You'll recall that 2012, there was a really large destocking that went on. Since that destocking in 2012, spares have improved each of the last couple of years. It may be that the airlines, based on the profitability of the operations, are more aggressively replenishing some of that destocking that happened a few years ago. Very strong. We don't expect that rate of 31% to persist for the year.
I think we talked about double digits. We're probably talking about mid-double digits, mid-teens maybe. It's not going to be 31% for the year.
Our next question comes from Jeff Sprague with Vertical Research.
Thank you. Good morning, gentlemen.
Hey, Jeff.
Hey, good morning. Hey, just wanted to kind of circle back around to Alstom. Given that there was kind of such an abrupt change in strategy around capital
You're achieving your business mix goal through subtraction largely. How do you actually feel about Alstom here? Is that really the right asset? Is there a way to back out of that if the EU is a little too demanding?
Well, I would take that in two pieces. I'd say the premise for the deal, Jeff, is relevant today as it's been in the past, which is very complementary products, opportunity to drive excellent synergies, a good return on investment. We feel at the 4x [EV/AT] post synergies is a pretty attractive entry point into an investment like that, so high double-digit returns in a market we really know. Look, I would back up and say, the company's gotten probably 100 deals through the Brussels in the past decade, something like that. I think we know how to approach this and know how to get these things done. Just like every other deal we've ever done, if this one ever would become unattractive, we wouldn't do it. That's no different than any other transaction we've ever done as a company.
Our next question comes from Robert McCarthy with Stifel.
Good morning, everyone.
Hey, Rob.
Hey, it looks like we've reached the lightning round of the call. I got one question. I'll make it count. In any event, just in terms of the timing of the divestiture of a large part of these GE Capital assets, I mean, obviously, the inbound call volume's very encouraging, but at the end of the day, given the size, scope, and nature of a lot of these businesses, you're going to be dealing probably with a lot of large SIFI-like institutions. I mean, how do you reconcile the need for speed killing in terms of getting these divestitures versus getting the right price? How are you thinking about those decisions, and do you think the timeline is practical?
Well, I think that the plan that Keith laid out with all of you last week, we laid out a plan that spanned two and a half years here, roughly. We thought that the bulk of this work would be done by the end of 2016. We're going to try to outperform that, there's no question. I think that when we think about the risks associated with this, including price and value, speed is the single biggest mitigant. We have a market today that's incredibly receptive to these kinds of assets. We need to be able to capitalize on that.
There is no question we've got to balance from an execution standpoint the nature of the buyer and the size of the transaction to the extent that we're relying on maybe a back-end regulatory approval by the buyer with doing smaller transactions that maybe not, may be better from a price perspective than doing several large, big bulk deals. I think my guess is that Keith and the team will run almost a parallel process there, where we'll evaluate on both tracks, platform by platform, portfolio by portfolio, the level of interest there, versus a couple, several maybe, much larger deals that try to sweep up many of those platforms simultaneously. We're completely aware of exactly what you're asking, and we have a process, and we'll make sure that we evaluate it in those lights, but speed is the key.
Rob, I just want to say that the Lifetime Achievement Award winner, JoAnna Morris, is working the phones this morning. Don't blame Jeff Bornstein or me for any of this activity. I want to echo just what Jeff Bornstein said, which is you got to think about each one of these assets having multiple options for what we do. It's not like for any one of these, there's only going to be one game plan. There's going to be multiple for every platform.
Our next question comes from Steve Tusa with J.P. Morgan.
Hey, good morning.
Hey, Steve. How are you?
It's been a while.
Yeah.
Just to be clear, is the oil and gas guidance, what is that now for the year? I'm not sure there was an explicit comment on oil and gas. If you could just opine a little more clarity around what happened with the aviation supply chain. There's definitely been a lot of noise from maybe sub-suppliers and stuff like that around that supply chain. Just curious as to how you guys are kind of fitting into that puzzle.
We didn't change anything on guidance on oil and gas, Steve. I think what we said is down 0%-5%, probably closer to 5%. We evaluated scenarios beyond 5%. All those were considered in the guidance we gave you at $1.10-$1.20. As Jeff talked about, he's incented the team and our targets internally on the higher end of that range, not the lower end of that range. No change to anything we've shared with you in the two calls previous to this.
I would say, Steve, the production is ramping in 2Q and getting back on schedule and no real update other than what Jeff Bornstein said on the call.
Our next question comes from Joe Ritchie with Goldman Sachs.
Thanks, JoAnna, good morning, everyone.
Hey, Joe.
The first question, I guess first and only question, is really on the order of priority on the asset sales. Can you just discuss a little bit, both on CLL and consumer, and I guess specifically as it relates to U.S. versus international, how you're thinking about the order of priority? I would imagine That given your goal is to de-designate the non-bank SIFI, I would imagine be focused on the U.S. assets, any color there would be helpful.
What Keith and the team are focused on, first and foremost, are those platforms where we might be more concerned about the franchise value itself, where the people are a big component of the value creation process. He has prioritized the focus based on that first. You are correct. I would say the second order priority would be, we think in the U.S., our ability to execute quickly and then scale is very favorable today, and it is a big part of the discussion around the SIFI status. Having said that, it is not as though we are not going to do anything outside the U.S. We are going to be working the international platforms in parallel here as well.
Thank you. Our final question comes from Nigel Coe with Morgan Stanley.
Thanks. Good morning.
Hey, Nigel.
Hey. Jeff, I think you're going to win the prize for most bullish CEO this quarter. The $120, I just wanted to kind of divine what you mean by working towards the high end, because right now consensus is close to $110. Are you encouraged enough to raise our numbers? If so, do you see a path to the 5% organic, or is it primarily midpoint to low point, but offset by margin? Any comments there would be helpful.
I think, Nigel, this is the exact same comment I made in January, that just centers where the internal incentive plan sits, and the internal incentive plan sits towards the high end of the range. We were transparent about this at year-end, and we've been transparent about it in January, and I'm transparent about it in April. Again, I think the value of a portfolio is that you've got a series of businesses that are doing well, and you've got markets that are still volatile out there, and we just want to see how that continues to evolve. Like I said earlier, like Jeff said, we're pleased with where Oil & Gas finished in the first quarter, but that market is extremely volatile right now, and we just want to see how we continue to progress, what happens in the marketplace, and let's see what happens.
There's plenty of chance to make other changes as the year goes through. Let's see how we do quarter by quarter. Beyond that, look, I think we've got a good diversified set of businesses that are doing well in the industries they're in, and we need to see how the world continues to evolve.
Okay. A couple of announcements before we wrap up. Next Wednesday, we'll hold our annual shareholders meeting in Oklahoma City. On May 20th, Jeff will present at EPG. On June 16th, we'll hold our Paris Airshow investor meeting. As always, we'll be available later today to take your questions. Jeff?
Great, Matt. Thanks. Thanks, everybody. We announced a lot last week on really positioning the company for the future. We're excited about that strategic change, that strategic pivot. The underlying performance of the company, both Industrial and GE Capital, is per our expectations for the year. We continue to make progress. We're pleased by the execution of the team in the first quarter, and we look forward to the rest of the year. Thanks, Matt.
This concludes your conference call. Thank you for your participation today. You may now disconnect.