Good day, ladies and gentlemen, and 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, and I will be your conference 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 Kribbons, Vice President of Investor Communications. Please proceed.
Thank you. Good morning and welcome everyone. We are pleased to host today's Q1 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 Immel and our Senior Vice President and CFO, Jeff Bornstein. Now 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.
Overall, 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. Meanwhile, 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% and revenue grew 3%. Industrial segment profit grew by 9% or 12% organically with margins up 120 basis points. Oil and Gas had a solid Q1.
Organically, they were positive in orders with revenue flat. Profit was up 11% organically. The oil and gas market remains volatile with some segments under pressure. However, our diversified oil and gas platforms delivered in the Q1. 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 were 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 point $2.0 Orders were up 1% organically and we finished the quarter with $263,000,000,000 of backlog.
Again, oil and 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 remained robust. We remain on track for strong orders in productivity in 2015.
New install orders for healthcare IT grew substantially in the Q1. We launched asset performance management in the manufacturing space. Orders for transportation software and solutions are planned to be up 50% for the year, and we expect consistent growth for wind power up and AGPs for the year. We saw some encouraging signs in the quarter. Aviation remains very strong recording 800,000,000 dollars on LEAP orders.
The LEAP has won 79 percent of all NEEO and MAX orders. LEAP engines for NEEO and C919 are flying and the LEAP for Boeing is in the test 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 continue to record global wins and they received a $350,000,000 order in Angola. Power conversion grew orders by 10% and we have solid orders performance in China of 54%. We expected power to have tough comps in the Q1. In addition, they saw several orders slip into the Q2. But overall, we see good demand for units in North America, Japan, Saudi, North Africa, Mexico and Brazil, and we anticipate a strong Power orders recovery in the 2nd 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% and growth markets were 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 6 of 7 segments and we have forecast organic growth of up 2% to 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 and we hit 90 basis points in the Q1. We had favorable mix, value gap and productivity in the the quarter.
Meanwhile, simplification continues to drive good results and 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 quarter. We're making progress on margins as a company. Industrial CFOA was $900,000,000 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, and 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 second half flows. 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, but we continue to see this as a good strategic and financial fit for us, and we intend on completing a deal that is good for investors.
Now over to Jeff.
Thanks, Jeff. I'll start with the Q1 summary. As we discussed last week, we took a significant day 1 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 $33,100,000,000 which were down 3% in the quarter, driven by GE Capital, which was down 7%.
Industrial sales of 23 $800,000,000 were down 1%. Operating earnings of $3,100,000,000 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 $1,300,000,000 We had industrial CFOA of $900,000,000 and received $450,000,000 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 $6,200,000,000 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 4 points of headwind from foreign exchange. Foreign exchange was approximately $940,000,000 drag on industrial segment revenue and about $120,000,000 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 $1,600,000,000 up 14% and GE Capital earnings were $1,500,000,000 for total operating earnings of $3,100,000,000 Including non operating pension, continuing earnings were 2,700,000,000 dollars We had an approximately $80,000,000 benefit in discontinued operation associated with the sale of our consumer mortgage business in Australia to bring net earnings to $2,800,000,000 The next column is the impact of GE Capital exit announcement as we reviewed with you last week. As we discussed, we took a $14,000,000,000 charge associated with classifying businesses and assets that fell for sale and a $6,000,000,000 tax charge. We also took a 2.3 $1,000,000,000 DISCOPS charge principally reflecting the real estate transaction.
After adjusting 1st quarter operations for these items, the reported amounts are shown in the 3rd column. So $2,800,000,000 of operations net earnings offset by $16,400,000,000 of GE Capital charges works to the reported $13,600,000,000 net earnings loss for the Q1 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. Next 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 $422,000,000 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 that appliance gain in the 2nd quarter and the signaling gain in the second half, but both are subject to regulatory approval.
Although there will be quarterly variability in gains in restructuring time, we expect gains to equal restructuring for the year on an EPS basis. Next, I'll give an update on power and water. Orders for the quarter were $4,500,000,000 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 2 7F gas turbines this week that we expected to sign in the Q1.
Our framework for wind and thermal orders has not changed for the year and we expect 2nd quarter orders to be up double digits. In the Q1, we booked 21 gas turbines versus 31 a year ago and 376 wind turbines versus 4 22 turbines in the Q1 of 2014. In terms of H Technology, we booked another order for 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 9 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 1 year over year.
No change in outlook for AGPs or services for the total year. Revenue of $5,700,000,000 was higher by 4%, but was up 9% ex foreign exchange. Equipment revenues were up 1% 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% 174 respectively.
Service revenues were higher by 7% driven by higher upgrades including AGP upgrades 21 versus 17 a year ago. Operating profit of 871,000,000 2%, that's flat ex foreign exchange driven by higher volume offset by negative productivity and supply chain and engineering associated with the HRAM and negative product mix due to lower distributed power. Value gap in the quarter was a positive $12,000,000 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 3000 to 3,200 turbines and AGP upgrades remain on track and distributed power will remain pressured throughout the year.
Next, I'll cover oil and gas. Oil and gas orders of 4 point $3,000,000,000 were down 6% reported, but up 2% organically. Equipment orders of $2,200,000,000 were down 10%, flat organically. Service orders were down 27% on weak North American activity and TMS orders were down 23% with no repeat of 2 large LNG orders we took in the Q1 of last year. It was still a decent orders quarter for TMS, which booked more than $700,000,000 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 $2,100,000,000 were down 3%, but up 4% organically. Surface was lower by 21% and TMS was down 8% largely due to foreign exchange. Exchange. Subsea was strong up 21%, MNC was down 1% organically.
Revenues of just under $4,000,000,000 or 8% reported. Reported negative v percent includes 7 points of foreign exchange and 1 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 and 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 and 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 costs.
Price was a $5,000,000 drag in the 1st 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 and 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 $1.10 to $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 $7,500,000,000 were up 36%, equipment orders of $3,900,000,000 were up 64% on higher commercial engine orders of $3,300,000,000 up over 2 times versus prior year. This was driven by $1,200,000,000 of GE90 engine orders, up 10 times versus last year from Kuwait Airlines, Emirates and includes a GE9X order for Cathay. GE NX received $360,000,000 in orders, up 3 times and we also recorded $800,000,000 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 larger orders from Sikorsky and Qatar Air Force from the Q1 of last year as expected. Service orders were up 14% on strong commercial spare parts, which were up 31% at $38,900,000 a day and military spares were down 11%. Revenues of $5,700,000,000 were down 2%.
Equipment revenues were down 8% with commercial equipment revenue down 1% on lower Gen X 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 and service revenue was up 4% with commercial spare parts up 28% and military services up 3%. Our profit was up 18% on very strong value gap, variable cost productivity and favorable Gen X mix, partially offset by lower volume and higher R and D. Margins improved 3.90 basis points in the quarter.
The impact of the lower Gen X 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 Gen X units. Aviation had another strong quarter growing equipment and service backlog by 23% 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. Next, Healthcare orders of $4,200,000,000 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 and China was down 4%. Healthcare system orders were down 5 percent, 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 $4,100,000,000 were down 3%, but up 2% ex foreign exchange. Healthcare system revenues were down 6% flat organically and life science revenues were up 4 percent. 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 dynamic. We believe we're gaining share in key modalities in the U.
S. And 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 and the business team continues to execute on its cost out programs. In transportation, North American carloads 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% and 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 Q1 of last year. Revenues in the quarter were up 7% driven by strong equipment growth.
We shipped 2 15 Locos 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 preproduction Tier 4 units out with our customers running on the rails.
They are performing in actual operating condition as part of our validation process. We had about 1200 Tier 4 Locos in backlog at the end of the Q1 of 2015 and we expect to ship about half those this year. On the Energy Management orders of $2,100,000,000 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 renewables vertical up 2 times on solar inverters and the marine vertical was up 15% on a large Canadian propulsion dynamic positioning percent 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. Our profit was $28,000,000 up from $5,000,000 last year on a reported basis. The business continues to benefit from restructuring with strong base cost productivity driven by SG and 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. And then 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 Q1 expectation of +8% due to the harsh weather across the U. S. We believe GE increased our share by 2 points in the Q1. 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 percent of lighting revenues and that's up from 17% of lighting revenues in the Q1 of 2014. Our profit in the quarter was $103,000,000 Now on 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 Q1 reported financials. On the page, we have provided a walk starting with the earnings from our vertical businesses, which generated $352,000,000 for the quarter. Operating earnings from the remainder of our businesses in continuing operations amounted to $1,100,000,000 which was more than offset by $14,000,000,000 day 1 accounting adjustments related to last week's announcement. Earnings from continuing operations amounted to a net loss of $12,500,000,000 Discontinued operations generated additional losses of $2,200,000,000 which reflect the charges associated with our commercial real estate business.
Overall GE Capital reported a $14,700,000,000 loss, including $6,000,000,000 of tax expenses. We ended the quarter with $303,000,000,000 of ENI excluding liquidity. Our liquidity levels remain strong and we ended the quarter at $76,000,000,000 including $14,000,000,000 attributable to Synchrony. Our commercial paper program remained at $25,000,000,000 and we had $8,000,000,000 of long term debt issuance for the quarter. As discussed last week, we do not anticipate additional issuances over the next 5 years and we expect GE Capital CP balance to decrease to $5,000,000,000 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 1 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 E and I 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. And 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 to 1.20 dollars 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 and 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 and A, we'll invest $10,000,000,000 to $15,000,000,000 each 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. And as Jeff said, we're focused on the verticals and we'll keep them top of mind.
We've set a target of $90,000,000,000 in asset sales and this is part of our guidance. We already have approximately 50% announced and have robust pipeline to achieve this by year end. Again, we will update this at EPG. Free cash flow remains on track to $12,000,000,000 to $15,000,000,000 Dispositions and CFOA are on track and we expect GE Capital to dividend between $500,000,000 $7,000,000,000 in line with what we talked about last week and 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 $20,000,000,000 to you in the form of a share exchange. And as you saw last week, our Board has authorized a $50,000,000,000 buyback based on the proceeds from the GE Capital sale. So between Synchrony, the buyback and dividends, we can return $90,000,000,000 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 up for questions.
And our first question comes from Scott Davis with Barclays.
Hi, guys. Good morning.
Hey, Scott.
I was intrigued by your couple of comments that you made. But Jeff Bornstein, the comment you made on incoming interest into the asset sales. I mean, give us a sense of and 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? Do you have if the sovereign showed up tomorrow, could you hand them the keys? And a few months later, it's you can get the deal done?
Or 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. So 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. And we are about. And 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 etcetera, etcetera. But we are going to go after this as fast as humanly possible. And I think the positive point here is the level of interest is really quite incredible.
Okay. That's good. And then, Jeff Amel, you made a comment in your prepared remarks about wanting to get to an efficient balance sheet or something in that regard. And I hadn't really heard you mention it in those terms before. I mean, how do you think of an inefficient 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. And how fast that goes, again, depends on Jeff's answer earlier on GE Capital assets and things like that. But our goal is to have 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. And then 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 $120,000,000 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 Whittaker of Bernstein.
Thanks and good morning.
Hey, Steve.
Hey. Just can we go to that $1.10 to $1 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? And also how much 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 and that lines up with how the internal business plans work. So I think we talked to you guys Steve at the year end meeting at EPG about the comp plan we have the team to. So when you look at the AEIP plan that frames compensation for the leadership team, that's what I referred to. And 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.
So not really much impact in 2015 and more so in 2016.
So maybe just sticking on that then and maybe this is to Jeff Borenstein on this one. How are you if we just walked our way from again this $0.31 and given the trending of oil and gas, what just maybe 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 us or what gives you guys the confidence of getting to that over the next three quarters in 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 Q1 call I'm sorry, in the Q1 on the Q4 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 of $1.10 or 1.20 dollars We've got the team 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 600,000,000 dollars of cost this year, both base cost and product and service costs.
So when we take a look at where we ended here in the Q1 with oil and gas and how we think about the balance in the next three quarters and very importantly, with all the restructuring that we're doing, the benefits of that largely in the second half of the year, we feel like today based on everything we know that those scenarios and that guidance that we gave you remains intact.
Steve, I would add to it. 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. But you see all the volatility in the market and this is going to it's just going to be something we have to continue to evaluate quarter by quarter.
But 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. And 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. So I think that's one of the strengths of GE. You've seen the way aviation got out of the gate and that some businesses get a chance to provide some upside maybe during the year. Okay.
And then just lastly on this topic, the 1.4% order pricing, negative order pricing in oil and gas again, that is really how should we think about that in terms of are these additional is there any additional renegotiation or existing backlog happening? Or is this new? And where are you seeing the weakness on that front?
Yes. So when you look at order pricing Steve, that 1.4% is almost entirely associated with the Ghana Subsea order we took. So it's not broadly across the portfolio. We have not renegotiated any prices from existing backlog. So 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.
Yes. Good morning. Hey, Andrew. Yes. Maybe I'll let others ask questions on oil and gas.
Let's focus a little bit elsewhere. As I look into 2016 and what about renewables and I guess I will touch on oil and gas. What about Subsea? Because the industry timing on Subsea suggests that orders will be very strong this year. But 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?
So 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. So that kind of keeps the U.
S. At a kind of, let's say, steady state. And then when you look around the world, you see growth. I mean, I think if you look at Brazil, if you look at places in Europe, if you look at even Africa and Middle East, we see pretty good growth in China. We see pretty good growth in wind globally.
So Yes, 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. Yes.
But roughly the same kind of volume.
I think the way to think about Subsea 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 Banga in Nigeria or projects in Australia or things like that. But once a project is going, it's unlikely that it will be stopped. In other words, you already have fixed cost. And when it gets into production mode, it's unlikely that it's going to slow down. So we still think Subsea in 2015 2016 are going to be okay within that context.
And just to follow-up a little bit shorter term looking to the Q2, you highlighted some delays in Power and Water and Aviation. So if these two segments recover actually into the second quarter, what does it imply for organic industrial growth in the
Q2? Well, I think at the moment here where we've given you guidance for the year here, we expect organic growth to be 2% to 5% for the year. We're at 3% here in the first quarter. I think that's generally the trend we expect to be on throughout the year.
But directionally they would imply that ex oil and gas there should be some room for acceleration in the rest of the business, right?
Again, we see those segments getting better in the Q2. But again, we don't want to we just don't want to do organic revenue pace quarter by quarter, Andrew. So
we're comfortable on
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.
Hey. So maybe just on the equipment margin improvement, 120 basis points, pretty impressive. It looks like some benefit from mix in the quarter. As we go forward, I mean assuming you can't count on that mix every quarter, value gap, cost productivity and some of the things Jeff Borenstein, Dan Einselman 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?
Yes. So 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 mix that probably wanted to be or hopefully would be something more neutral. So I would expect us to do 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.
And 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 Q1 results, particularly around equipment margins, just about every business had improvement with the exception of power and water and oil and gas. So 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. And then just maybe on Alstom, Jeff Hamill, 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? And then 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?
Yes. I would say let me answer the second piece first, Shannon. I would say the there's nothing really that's been a big surprise as we go through this. So we always thought that there would be a second request or that process would take until the summer. And so 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 $0.16 So we still feel that is achievable and synergies are quite robust and we like that. And 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. And so 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. So 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 softer AGP as well and sales are still okay.
So 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. So 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. So I don't think there's a broad theme here even geographically around Power Gen Services.
Our next question comes from Barbara Novarini with Morningstar. Good morning, everybody.
Good morning, Barbara.
So is productivity growth tracking your expectations since you spoke about your plans back in the fall? And can you talk about which of your operating segments are driving the most demand for predictive analytics solutions this year?
Yes. So we see again, I would say 30% to 40% growth pretty consistently across the business in software and productivity. I just had a review with all the businesses last week. And so there's a variety of different initiatives. I'd say, clearly, the power and power upgrade things like power up on the wind turbine side.
We've got 10 installs, but really another 100 behind that that's quite exciting. As I mentioned, the rail business has got an expectation to grow orders about 50% for the year. So 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. So some pretty good activity there.
We've kind of launched what we
call asset performance management, APM and
oil and gas. So we're seeing APM and oil and gas. So we're seeing an original service funnel in that activity. So I'd say macro kind of in the 30% to 40% range with strong double digits in each business as we look at software and productivity for the year.
Our next question comes from Deane Dray with RBC.
Thank you. Good morning, everyone.
Hey, Deane. Hey, a couple of
questions on the aviation side that spares number being up 30 1% really jumps out. And do you see changes in airline behavior? Is this coming through because of lower fuel? And how sustainable is this through 2015?
Well, I think you heard the revenue. The volume numbers are pretty good. Revenue passenger miles are very, very strong. There's no question that most of the forecasts are that the aviation industry globally probably have its most profitable year in history this year. I think I8 is estimating almost $25,000,000,000 of profit.
And the airlines are no question stocking inventory. You'll recall that 2012 there was a really large stocking that went on. And since that de stocking in 2012, spares have improved each of the last couple of years. So it may be that the airlines based on the profitability of operations are more aggressively replenishing some of that destocking that happened a few years ago, but very strong. Now we don't expect that rate of 31% to persist for the year.
I think we talked about double digits and we're probably talking about mid double digits, mid teens maybe, but 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. Just wanted to kind of circle back around to Alstom.
Given that there was kind of such an abrupt change in strategy around capital and you're achieving kind of your business mix goal kind of through subtraction largely, how do you actually feel about Alstom here? Is that really the right asset? Is there and is there a way to kind of back out of that if the EU is a little too demanding? Well, I would take that in 2 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, good return on investment.
And we feel at the kind of 4 times EBITDA post synergies is a pretty attractive entry point into an investment like that. So high double digits returns in a market we really know. And then look, I think just like every I would back up and say, the company has gotten probably 100 deals through Brussels in the past decade, something that. So I think we know how to approach this and know how to get these things done. But just like every other deal we've ever done, if this one ever would become unattractive, we wouldn't do it.
So 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. So I got one question. So 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 comp volumes were 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 kind of speed killing in terms of getting these divestitures versus getting the right price? And 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 a couple of two and a half years here roughly, but that we thought that the bulk of this work would be done by end of 2016. Now 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.
And so we need to be able to incredibly receptive to these kinds of assets. And so 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, maybe not, maybe better from a price perspective than doing several large big bulk deals. But 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. So 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 slides, 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. So don't blame Jeff Bornstein or me for any of this activity. And 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. So 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.
And our next question comes from Steve Tusa with JPMorgan.
Hey, good morning.
Hey, Steve. How are you? It's been a while.
So just to be clear, the oil and gas guidance, what is that now for the year? I'm not sure there was like an explicit comment on oil and gas. And then if you could just opine on the 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. So 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. So I think what we said is down 0% to 5%, probably closer to 5%. We evaluated scenarios beyond 5%. All those were considered in the guidance we gave you $1.10 to $1.20 We got the team executing to a plan that supports the $1.10 to $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. So no change to anything we've shared with you in the last the 2 calls previous to this.
And then I would say, Steve, the production is ramping in 2Q and getting back on schedule and no real update other than what Jeff Ornstein said on the call.
Our next question comes from Joe Ritchie with Goldman Sachs.
Thanks, Joanna, and good morning, everyone.
Hey, Joe.
First question I guess, first and only question is really on the order 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?
Because 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. So any color there would be helpful.
Yes. So where Keith and the team are focused on, 1st 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. So he has prioritized the focus based on that first. You're correct. I would say the 2nd order priority would be, we think in the U.
S. Our ability to execute quickly and in scale is very favorable today. And it is a big part of the discussion around the SIFI status. So having said that, it's not as though we're not going to do anything outside the U. S, we're 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. So Jeff, I think you're going to win the prize for most bullish CEO this quarter. The $120,000,000 I just wanted to kind of define what you mean by working towards the high end because right now consensus is close to $110,000,000 So are you encouraged enough to raise our numbers? And if so, do you see a path of 5% organic? Or is it primarily midpoint to low point but offset by margins?
So 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. And we were transparent about this at year end and we booked 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 continues to evolve. Like I said earlier, like Jeff said, we're pleased with where oil and gas finished in the Q1, 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 let's see what happens. There's plenty of chance to make other changes as the year goes through. But let's see how we do quarter by quarter.
And beyond that, look, I think we are 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 20, Jeff will present at EPG.
And on June 16, we'll hold our Paris Air Show 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 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 Q1, 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.