Good day, ladies and gentlemen, and welcome to the General Electric Third Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen only mode. My name is Vivian and I'll be your conference coordinator today. As a reminder, this conference is being recorded. I would now like to turn the program over to your host for today's conference, Matt Grievins, Vice President of Investor Communications.
Please proceed.
Great. Thank you. Good morning and welcome everyone. We are pleased to host today's Q3 webcast. Regarding the materials for this webcast, we issued the press release, presentation and GE supplemental earlier this morning on our website at www.ge.com/investor.
As always, 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 our Senior Vice President and CFO, Jeff Bornstein and our Vice President, GE Healthcare Life Sciences, Kieran Murphy. We've asked Kieran to join to talk about our Life Sciences business.
Now with that, I'd like to turn it over to our Chairman and CEO, Jeff Immelt. Thanks, Matt. We continue to plan against the global macro backdrop that is volatile and one where some economic projections have recently been revised downward. That said, we are seeing solid pockets of underlying growth in many of our markets. The good news for us is that we plan for a volatile environment, our businesses are executing well, and we are tracking to our expectations for the year.
As a result, we had a good quarter. EPS was $0.38 an increase of 6% versus last year. Our Industrial segment profits grew by 9%. Our relative position in key markets is improving. We've gained share in transportation, aviation, power and healthcare.
We had great new products. Orders grew by 22%. For the first time in a while, we are seeing volume improving for GE Capital in the U. S. GE grew margins by 90 basis points.
We continue to generate benefits from our simplification efforts and are on track for more than $1,000,000,000 of cost out for the year. Margins improved in 6 of 7 businesses and our cost out momentum is strong. We remain on track for CFOA for the year. So we're running the company well. And we're executing on our portfolio strategy.
We launched the Synchrony IPO in July. And as we move forward, this will dramatically reduce the size of GE Capital and our presence in consumer finance. And we've invested in platforms like Milestone Aviation and Helicopter Leasing Business linked to GE Aviation. So we're on track to create a smaller GE Capital focused on commercial finance. At the same time, we announced the sale of Appliances, a legacy GE Business.
GE business. The Synchrony spend, appliances sale and Alstom acquisition from the Q2 are all a part of repositioning GE to be the world's best infrastructure and technology company with a smaller financial services division. This is a more valuable GE with 75 percent of our earnings from industrial by 2016. We're winning in the market. Orders were robust in the quarter, growing 22%, and this was driven by 31% equipment orders growth and 10% growth in services.
Orders pricing was positive in the 3rd quarter. Technology drives high margin share and we took orders from more than 1,000 Tier 4 compliant locomotives in the quarter and are ahead of the competition. Aviation continues to enjoy great success with LEAP wins, GNX share growth and the G9X launch orders. For the first time in a while, power and water equipment orders grew in the United States, up 41%. We now have 13H turbines in backlog, and we're enjoying good success in oil and gas with subsea orders growing by 63% and the launch of the 20 ks blowout preventer.
NPIs are helping healthcare to grow in the United States and new innovations are helping LEDs to grow orders by 60% and power conversion by 30%. Service orders grew by 10% with growth in 5 of 6 businesses, aviation commercial spares were up 29% and power gen services grew by 10% despite some sluggish end use markets. Last week, we announced new analytical applications and that our productivity solution revenues will exceed $1,000,000,000 in 2014. Orders growth was broad based geographically. U.
S. Orders were strong with growth of 25% and growth markets expanded by 34% with 5 of 9 regions up in the quarter. These include China up 26%, orders in the Middle East, North Africa and Turkey doubled Latin America was up 54%, Africa up 9% and Canada up 46%. Backlog is a record high of $250,000,000,000 up more than $20,000,000,000 in the past 12 months. We had a service backlog true up in aviation driven by finalization of terms with CFM for LEAP, which reduced the total by $2,000,000,000 nonetheless, we're at record highs.
Strong orders position GE for sustained growth in the quarter and beyond. Segment profits grew by 9% with 6 of 7 segments expanding. Year to date segment profit is up 10%, driven by 5% organic revenue growth and 50 basis points of margin expansion. Organic growth was up 4% in the quarter and 5% year to date. Aviation and transportation remained very strong with equipment growth of more than 10%.
Oil and Gas organic growth was up 10%. We saw a strong U. S. Environment in healthcare. And Power and Water had tough comps in the Q3, but we'll have a very strong 4th quarter shipments versus last year.
And for the year, our industrial organic growth should be at the high end of our framework. We had another strong quarter on margins at 16.3%, up 90 basis points. Big drivers continue to be value gap productivity and simplification, and we expect this to continue. Year to date margins are up 50 basis points and service margins have grown by 170 basis points year to date. With service orders growing by 10% and strong margin expansion, we're seeing some of the early signs that our investment in analytics are paying off.
We remain on track to grow Industrial segment profits by 10% at least this year. We generated $7,200,000,000 of CFOA year to date and are on track for $14,000,000,000 to $17,000,000,000 for the year. For the quarter, we grew CFOA by 41%. GE Capital dividends are on track for $3,000,000,000 in the year. We will generate substantial CFOA in the 4th quarter, driven by much higher industrial earnings and stronger shipments than last year.
We continue to have strong liquidity and balance sheet strength. GE Capital Tier 1 ratio was 12.1%, up 80 basis points, and we're targeting buyback and dividends of more than $11,000,000,000 for the year. In addition, we expect the Synchrony split to take GE shares below $9,500,000,000 by the end of 2015. Our capital allocation continues to be disciplined and balanced. Now let me turn you over to Kieran Murphy, who is the leader of our Global Life Sciences business.
This is a strong GE franchise with expanding organic growth, margins and cash flow. Kieran joined GE in 2008 and has 25 years of experience in the life sciences
industry. Thanks, Jeff. Good morning and thanks for giving me the opportunity to tell you more about life sciences, a $3,700,000,000 business within GE Healthcare. The healthcare industry is moving towards a more precise diagnosis with more precise treatment to address an annual waste of $350,000,000,000 since most or around 90% of currently marketed drugs only work for about 40% of people. Precision medicine will improve patient outcomes and reduce healthcare costs.
And this is driving the demand for biologics as opposed to chemical medicines, improving efficacy and reducing side effects. We are an essential component of drug manufacturer for this industry. Our presence in life sciences extends from the research lab, where we help in the discovery of new medicines to the manufacturing plants, where we deliver capacity and productivity. And then all the way through to supporting clinicians, who use our diagnostic agents to make refined diagnosis for tens of millions of patients around the world every year. The expansion of biological medicines for the treatment of diabetes, cancer, rheumatoid arthritis and other diseases drives demand for GE products and services, which are embedded in biopharmaceutical drugs.
Generic bio drugs called biosimilars. There is a growing market need for genetic bio drugs called biosimilars. This has the potential to be a significant growth opportunity over the next 5 to 10 years. And the next evolution of medicine, regenerative medicine, which is based on regenerating cells, tissues and organs in the body is an area where GE is investing for the future. All of this adds up to a market growing at around 8% per year.
We have a broad portfolio of products, which are split into 2 main areas, bioprocessing and research, serving academic and pharmaceutical customers and diagnostics aimed primarily at clinicians. For biopharma manufacturing, we have a leading global franchise built on a portfolio of products we acquired with the Amisham acquisition in 2 1,004. And we've continued to build value through successful R and D investments and a series of strategic deals resulting in a comprehensive offering that enables start to finish solutions for production. This start to finish solution creates productivity opportunities for our customers and I'll return to that later. Our Research and Applied Markets business has a series of strong brands for protein characterization, purification and analysis critical to the discovery of these new medicines.
Once selected, these consumables remain embedded in the scale up of the drug all the way to an FDA approved manufacturing process. Within the diagnostics business, we are the global leader in contrast agents used across the spectrum of diagnostic imaging, including x-ray, MRI and nuclear medicine. We supply customers through a global network of large scale, low cost manufacturing facilities. With novel in vitro technologies developed at the GRC, we have expanded our service offering to allow researchers to better understand the underlying biology of disease, which of course in turn leads to the development of these new precision medicines, which we then help to manufacture. And that brings me on to how critical we are to the biopharmaceutical manufacturing industry.
Over the past 6 years, biological medicine sales have grown at 10% per annum to $170,000,000,000 due primarily to expansion of monoclonal antibodies for the treatment of cancer and increasing demand for products like insulin. Our hardware and consumables are embedded in the FDA approved manufacturing process of these products. This manufacturer of biologics is completely different to the industrial process for making traditional chemical based medicines. It requires cells to grow, to produce specific proteins, which are then extracted and purified. This is an $8,000,000,000 market where we have built a leading position, all starting from the pharmacy and chromatography platform, which was part of Amersham.
We continue to build on this product and service platform organically as well as through deals, moving upstream with a series of acquisitions such as Wave and Accelrx, which added fermentors and disposable technologies to the portfolio and recently HiToneCell Media, part of the $1,000,000,000 acquisition from Thermo Fisher. This creates the start to finish solution I referred to earlier. We enjoy close strategic partnerships with the leading pharmaceutical companies who depend on us for reliable high quality supply. The move to biological medicines that has driven double digit growth over the past few years will continue as expansion in Asia creates new demand for manufacturing capacity. We are uniquely positioned to help in this expansion, both for global pharma companies wanting to localize production in new markets and for local manufacturers wanting to establish domestic production of crucial medicines.
We effectively partner to deliver factory in a box solutions. Our Flex Factory and QBO solutions can provide a complete factory in less than half the time required for a traditional plant, probably 6 months to less than 18 and at a fraction of the cost. Essentially, we provide a faster and more cost effective way of creating capacity and access to the emerging markets. Lastly, we're investing in the cell therapy or regenerative medicine space. An example of this would be the creation of cells, for example, to reverse diabetes.
The bottleneck right now in this industry is to move from research or small scale to industrial scale production and this is an area where we can bring our bioprocessing tools and expertise to enable this revolutionary change in medicine. It's an emerging market where we have lower revenues today, but we see it as having the potential to create a $1,000,000,000 business in the future. In summary, the Life Sciences business is a high margin, high quality growth business within GE. We are a trusted supplier to the pharmaceutical industry for biopharmaceutical research and manufacturing. GE Healthcare's deep relationships with hospitals provide greater access for sales growth and diagnostic and research products.
We leveraged GE's great strength in research and analytics from the global research center and our software center in San Ramon. We use the global operations and commercial teams across the world to sell into emerging markets. This is a business where in 2014 we are delivering strong growth, especially in bioprocessing with margins expanding by 100 basis points through business integration and organization simplification. And we are generating in excess of $1,000,000,000 free cash flow. Overall, the deal return for this business is in the low teens.
This is a growing and valuable business within GE and we continue to see a healthy pipeline and have great confidence in the future growth of the business. And now I'd like to hand over to Jeff Bornstein.
Thanks, Kieran. I'll start with the Q3 summary. We had revenues of $36,200,000,000 up 1% from the Q3 of 2013. Industrial sales of $26,000,000,000 were up 3% and GE Capital revenues of $10,500,000,000 were down 1%. Operating earnings of $3,800,000,000 were up 3% in the quarter.
Operating per share of $0.38 were up 6%, continuing EPS of $0.34 includes the impact of non operating pension and net EPS includes the impact of discontinued operations. We had a small benefit in discontinued operations this quarter associated with touring up taxes on the Gray Zone payment. As Jeff said, CFOA year to date was $7,200,000,000 We had industrial CFOA of $5,000,000,000 and received $2,200,000,000 of dividends from GE Capital. In the quarter, industrial generated $3,000,000,000 of CFOA, up $900,000,000 versus the Q3 of 20 13. For the year, we're on track to deliver on the $14,000,000,000 to $17,000,000,000 framework we provided.
The GE tax rate for the quarter was 18%. That brings the year to date rate for the industrial company to 20%. We expect the total year rate to be in the high teens. The GE Capital tax rate was 3% for the quarter and that was consistent with the low single digit total year rate that we previously communicated. On the right side, you can see the segment results.
Industrial segment revenues were up 3% reported, up 4% organically. Industrial segment operating profit was up 9% and GE Capital earnings were down 22% on lower assets, the Synchrony minority interest impact and lower tax benefits. I'll cover the dynamics of each of the segments in the next couple of pages. First, I'll start with other items for the quarter. We had $0.03 of restructuring other charges at corporate, dollars 0.02 of that related to ongoing industrial restructuring and other items as we continue to take actions to improve the industrial cost structure.
We also had a $0.01 charge related to the announced appliances disposition. We moved the business to held for sale and recognized prior service costs related to pension and retiree health for appliance employees. On a pre tax basis that was $113,000,000 of the total $435,000,000 restructuring and other charges we incurred in the quarter. I want to give an update on the industrial cost dynamics. On the left side, you can see our restructuring gains profile.
For the year, we expect to invest about $1,400,000,000 in restructuring and other charges with about $1,200,000,000 incurred through the 1st 3 quarters of the year. We had gains this year of about $0.01 from the Wayne disposition. And so for the year, we're expecting restructuring net of gains to be about $0.09 We like the paybacks and the operating leverage that we're getting from these projects. The average payback is about 1.5 years. Approximately 55% of these projects relate to product and operating costs and the rest is associated with SG and A.
On the right side, I'll give you a quick update on 2 important cost out commitments. First, on structural SG and A, we've taken out $674,000,000 year to date on our way to over $1,000,000,000 for the year. As a result of these actions, industrial SG and A as a percent of sales has come down steadily. Year to date, we're down 1.6 points versus 2013. We expect to be about 14% for the year, driven by an additional $300,000,000 plus of cost out in the 4th quarter and strong volume.
In corporate, we've taken actions to reduce our operating costs as well. Year to date, we've taken out $436,000,000 through simplification efforts at corporate headquarters, GGO and reductions in our social costs. For the year, we expect to deliver more than the $500,000,000 target we established at the start of the year. As Jeff said, Industrial segment operating profit was up 17% year to date, 19% in the quarter. This excludes the investments we've made in restructuring net of gains and the NBCU income we had in 2013.
So I'll start with the segment summaries. First, Power and Water. Orders in the quarter of $6,400,000,000 were higher by 9%. Equipment orders were up 8% driven by strong renewables up 42%, partially offset by distributed power down 32% and thermal down 8%. Renewables saw strength in Europe, Latin America and the U.
S. Despite the later than expected IRS clarification on PTC eligibility. Distributive power continues to see projects push. We booked about 30% of the units that pushed in the 2nd quarter, but saw some projects pushed to the Q4 in 2015. We believe all these projects are viable, but are located in tougher regions like Egypt, Libya, Angola and Kazakhstan.
Thermal orders were down on 4 lower gas turbines, on a gigawatt basis, driven by the large H class order in the U. S. From Exelon. This brings our total H units and backlog to 13. We now expect total year gas turbine unit orders to be about 105 to 110 versus 125 driven by disruption in the Middle East and some U.
S. Customers are shifting from F class to H class technology. This shift has required some of our customers to re permit their sites and has delayed some Service orders in the quarter were up 10%. We had strong orders for upgrades and transactional outage volume as discussed in the Q2 call. And AGPs in the quarter were 18 versus 15 a year ago.
Revenue of $6,400,000,000 in the quarter was down 2% with equipment down 8% and services up 6%. Equipment revenue was driven by distributed power down 35% on 24 fewer units versus last year, partially offset by strong renewables up 18 percent. Revenue was a little lower than expected. Wind units were 150 less than planned, driven by late IRS guidance, but we still expect to ship about 3,000 units for the year. Distributed power was also lower by about 10 units as projects were delayed.
On gas turbine units, we've shipped 64 units year to date and now expect to ship about 105 in the year versus the 85 to 90 we planned. Service revenues in the quarter of $2,900,000,000 were up 6% on higher AGPs and upgrades. From an operating profit perspective, we were up just shy of $1,200,000,000 was down 8% driven by negative price and mix from higher wind and lower distributed power, which more than offset cost benefits including SG and A, which was down 10%. Margins were down 110 basis points in the quarter. For the Q4, we expect strong double digit revenue growth on higher gas turbine shipments up about 40% and higher wind turbines up about 30%, bringing the total year shipments to about 105 on gas turbines and about 3,000 wind turbines, which is within the original framework.
As we discussed on the Q2 call, we still expect total year AGPs to be higher and distributed power units to be lower, impacted by the delays we discussed previously. In oil and gas, orders at $4,900,000,000 were up 10%. Equipment orders were up 14%, up 20% organically, excluding the impact of the Wayne disposition. We had strength in subsea up 84% with strong Brazilian orders, Downstream Technology up 64% driven by demand in small scale LNG, partially offset by D and S which was down 12% in the quarter. Service orders were up 6% with strength in Subsea up 27% and turbomachinery up 8%, partially offset by M and C which was down 8%.
Organically M and C was up 7% with demand for control solutions improving in both industrial and oil and gas applications. Revenues of $4,600,000,000 grew 7% year over year with equipment revenue higher by 9% and services up 4%. Operating profit of $660,000,000 was up 27% on strong cost performance, project execution and a positive value gap offset by lower M and C mix. Margin rates expanded in the quarter 2 40 basis points. Our outlook for the year remains intact for the business with double digit op profit growth.
However, we are moderating our view of orders growth from high single digits to low double digit to mid single digits. We expect orders to grow in the Q4. As you know, orders in this space are very volatile and we continue to see some big projects pushed to the right. Next, I'll do Aviation and Healthcare starting with Aviation. Travel demand continues to grow with RPK's August year to date up 5.1% domestically and up 6.3% internationally.
Orders for aviation were very strong in the quarter up 30% with equipment orders up 35% to $6,800,000,000 and services higher by 20%. Equipment strength was led by $3,800,000,000 of GE9X orders for Emirates, Etihad and Lufthansa. We also won $1,300,000,000 of CFM LEAP orders bringing our program to date win rate on the NextGen narrow bodies to 78%. Military equipment orders were down 40%, but up 3% year to date and are on track to be flat for the year. Service orders were driven by strong commercial spares up 29% to $30,900,000 a day, partially offset by military spares weakness.
Revenues in the quarters of $5,700,000,000 were up 6% driven by commercial equipment revenue up 22%, military up 8 percent and services down 1%. Commercial spares were up 19%, offset by military services down 17%. Leverage in the operating profit was strong with 16% growth on better price performance and volume partly offset by higher Gen X shipments with 65 units in the quarter, up 39 from the Q3 of 2013. SG and A ex Avio was down 4% in the quarter and margins expanded 190 basis points. Overall, David and the aviation team delivered a strong quarter.
We expect the aviation business to continue to expand its technology leadership. Gen X shipments will be higher in the Q4 and we still expect to ship about 300 units for the year. In the healthcare orders were up 1% with better growth in the U. S. Which was up 3%.
Europe was up 4% and Latin America was up 18%. This was offset by Japan down 12% and the Middle East down 15% in the Equipment orders of $2,700,000,000 were flat on lower Japan and Middle East orders. Our U. S. Equipment orders were up 4% driven by very strong imaging and ultrasound orders, which were up 10%.
We believe the U. S. Market was up as well, but more modestly. China HCS equipment orders were up 6% in the 3rd quarter and they're up 11% year to date. China growth was slower driven by tender decision delays in public hospitals.
In Kirin's business, life sciences, equipment orders were strong, up 15% and service orders for healthcare in total were up 4%. Revenues in the quarter were up 4% with developed markets up 2% and emerging markets up 11%, including China up 8%, Latin America up 30% and the Middle East up 16%. All profit grew 9% driven by volume and strong cost productivity offset by negative price. SG and A was down 5% in the quarter. Looking forward, we expect the U.
S. To remain volatile, but our products are performing well. Our position in China is very strong and we believe underlying healthcare demand remains strong in the long run with an aging population, increasing insurance coverage continued government spend in healthcare. As you heard today, we have a very exciting life sciences business with a unique position. Simplification will continue to transform our cost structure in this business.
Next is transportation, which had a very strong quarter. Orders in the quarter were up 134 percent led by equipment orders up 3 times or $2,100,000,000 The business took orders for more than 1,000 Tier 4 compliant locomotives to be delivered over the next 3 years. Locomotive loading is nearing current capacity levels for 2015. Carloads continue to be strong led by agriculture, petroleum and intermodal and network velocity continues to be a challenge. Mining equipment orders remain weak, down 38%.
Transportation service orders were up 8% in the quarter. Revenues were up 10% driven by locomotive volume with units up 49%, partially offset by services down 3% on mining weakness. Operating profit was higher by 12% driven by local volume and cost productivity and SG and A was down 5% and that allowed margins to improve 40 basis points in the quarter. We're very pleased with the team's execution on the Tier 4 Loco and expect to continue to fill out our order book for 2016 2017 and we feel great about our ability to execute against this order's growth. Energy Management, the business continues to improve.
Our orders in the quarter were down 1% with Digital Energy down 25% and Industrial Solutions down 7% on weak European demand and the impact of exiting certain markets and products as part of restructuring. Power conversion was strong, up 30% in the quarter, driven by marine. Backlog grew 9%. Revenues of $1,800,000,000 were down 1%. Op profit of $59,000,000 was up 3 times on strong cost and restructuring execution.
And then appliances and lighting, the core industry within appliances was up 9% in the 3rd quarter. Retail was up 9% and contract up 7%. Revenue in the quarter was up 1% to $2,100,000,000 with appliances up 2% and lighting down 2%. Appliance revenue was driven by volume up 3%, while strong LED growth of 59% and lighting was more than offset by traditional product declines. Operating profit of $88,000,000 was higher by 14% on strong We hope to close that transaction in mid-twenty 15.
Next, I'll We hope to close that transaction in mid-twenty 15. Next, I'll cover GE Capital. As you know, we successfully completed the IPO of 15% of our North American retail finance business, now known as Synchrony Financial. As a publicly traded company, CEO, Margaret Keane and the team will host their own investor call later this morning. We continue to make progress on separation efforts and expect the split out to take place towards the end of 2015, subject to regulatory approval.
In the meantime, Synchrony will remain consolidated in GE Capital Financials. GE Capital's revenue of $10,500,000,000 was down 1%, primarily from lower assets, partially offset by higher gains. GE Capital's net income of $1,500,000,000 was down 22%, principally driven by lower assets, which includes minority interest impact resulting from the Synchrony IPO and lower tax benefits. Earnings were also affected by the timing of our Nordics consumer platform exit, which as previously announced moved from the 3rd to the 4th quarter. ENI of $365,000,000,000 was down $19,000,000,000 or 5% from last year and down $7,000,000,000 sequentially.
Non strategic E and I was down $11,000,000,000 or 8% versus last year. Net interest margin in the quarter was 5%, which is essentially flat. GE Capital's Tier 1 common ratio on deposit 1 basis remains in a strong position and ended the quarter at 12.1%. This is up 40 basis points sequentially and 79 basis points year over year. Our liquidity levels are also strong and we ended the quarter with $80,000,000,000 of cash with $15,000,000,000 attributable to Synchrony.
Our commercial paper program remains stable at $25,000,000,000 and we have substantially completed our long term debt issuance for the year at $9,400,000,000 On the right side of the page, asset quality trends continue to be strong and stable. Now I'll walk through each of the segments. The commercial lending and leasing business ended the quarter with $170,000,000,000 of assets flat to last year. Onboard core volume was $10,000,000,000 up 5% driven by increases in both the Americas and international. We continue to see strengthening in the U.
S. Largely in the equipment financing with volume up 7%. The team is staying disciplined on pricing and risk hurdles and the new business returns at both lending and equipment were largely in line with the first half of the year. Earnings of $617,000,000 were up 29% driven by lower marks and impairments, primarily in our corporate air book as well as higher gains and tax benefits. The Consumer segment ended the quarter with $141,000,000,000 of up 4% from last year, driven by Synchrony.
Net income was $621,000,000 down 31%. As I mentioned earlier, Synchrony team will cover all the details of their quarter in a call later this morning. Our share of their earnings was $509,000,000 down 25 percent net of minority interest and investment in its standalone capabilities. The international consumer business was down as well from the effect of lower assets, which were down 16% year over year consistent with last quarter. In real estate, assets of $36,000,000,000 were down 9% versus prior year.
The equity book is down 28% from a year ago to $12,000,000,000 Net income of $175,000,000 was down 62%, primarily from non repeat of prior year tax benefits. In the current quarter, we sold 72 properties from our real estate equity book with a book value of roughly $500,000,000 for 122,000,000 dollars in gains. In the verticals, GECAS earned $133,000,000 down 23% from lower assets and tax benefits. Impairments including our annual review completed this quarter resulted in $197,000,000 after tax impact roughly in line with the Q3 of last year. The impairments are driven by value declines in 50 seat original jets, older 767s and older A320s.
Overall, the portfolio is in great shape and we finished the quarter once again with no aircraft on the ground and zero delinquencies. We do not anticipate any updates in Q4 to the GECAS impairment process. New volume was much stronger at $1,400,000,000 up 62% with very attractive returns in line with the first half of the year. As Jeff mentioned before, we were excited to announce the Milestone acquisition on Monday. The acquisition combines GECAS global reach and leasing expertise with a growing helicopter financing business that will diversify our business and put our capital to work at good returns.
This is in line with GE Capital's strategy to grow in the mid market and industrial vertical space where we have deep domain expertise and are competitively advantaged. The deal is expected to close in 2015 pending regulatory approvals. Energy Finance earned $61,000,000 down 59%, resulting from lower assets and gains and higher impairments. EFS volume was up strongly at 152% year over year
at very attractive returns. As you
look forward to the Q4, we expect GE Capital to be about $1,800,000,000 in earnings, including the gain from exiting of our Nordics business. However, we continue to aggressively work on opportunities to reduce the size of our non strategic work on opportunities to reduce the size of our non strategic portfolio. And these transactions could impact earnings and tax and the tax rate in the Q4. So overall, Keith and team continue to execute the portfolio strategy and deliver solid operating results. So with that, I'll turn it back to Jeff.
Thanks, Jeff. We remain on track for our 2014 operating framework. Industrial segment earnings are driven by sustained organic growth and margin expansion and are expected to grow by at least 10% this year. GE Capital is on track with higher earnings in the 4th quarter due to the timing of the Nordic consumer finance platform sale. Corporate is on track as expected.
And as expected, corporate has been a drag in 2014 because our restructuring investments exceed gains. However, this will be a real tailwind in 2015. Cash and revenues remain on track, and we expect Q4 organic revenue to be robust. Despite a volatile global environment, GE expects to have a good Q4 and deliver on our 2014 framework. In addition, we are changing the portfolio to position GE for long term growth.
The GE team has done a good job of both strategic and operational execution. With a big backlog, high levels of recurring revenue and a restructuring program already in place, we believe that GE will deliver for our investors in times like these. Now, Matt, let's turn it back over to you and take some questions. All right. Thanks, Jeff.
Why don't we open up and take some questions now?
Our first question comes from Scott Davis. Please go ahead.
Hey, guys. Hey, Scott. Appreciate the detail on the presentation. It's really helpful. Guys, I wanted to get your sense, I mean, if you look at the markets, it's kind of telling you that the world's falling apart, but then we see the numbers here and they look pretty darn good overall.
And overall, the space haven't been that bad. I mean, what are your customers telling you? I mean, are we at a risk of a real pullback in customer activity as we get into the Q4 just based on this new growth contagion that's out there, this growth fear?
Scott, I just give you a view of the world. And again, there's certainly a lot going on. But I would say, the U. S. Is probably the best we've seen it since the financial crisis, right?
When you look at rail loadings and things like that, you've got a decent and healthy U. S. Market. Europe's slower for sure. But I think most companies, industrial companies haven't counted on Europe and Japan for much incremental growth.
And then as you go across the emerging markets, I was 2 weeks ago, I was in the Middle East and North Africa, still pretty healthy, robust. China, I think, is more of a micro story than macro story now. Aviation, health care, very strong. If you're in the right industries, very robust Mexico, better. So if you look at it geographically, Scott, I think it's kind of the slow growth pattern with volatility, but not a lot different than what we've seen in the past.
And then kind of industry by industry, aviation remains strong, transportation remains strong. Power depends on what segments you're in. Oil and gas, you definitely have more caution in oil and gas, but I've been with a bunch of the CEOs just in the last couple of days. And the long term projects, I think, are still kind of underway. But there's certainly, I would say, there was already caution before the last, I would say, month or so around there.
So I think it fits a pattern that we've seen in the last couple of years. And the underlying activity is still reasonably healthy, but not universal. There are some parts that are clearly stronger than others.
Okay. Fair enough. And just health care, it's kind of unusual for you guys to make a big management change like that in the middle of a quarter or middle of the year, I should say. And the healthcare numbers were pretty good. I mean, what was it, Jeff, that you didn't like about the direction of what's going on in healthcare that really catalyzed the change there?
Scott, these things were always individual by individual. I think John Denied was a really good leader here. I think he's got good opportunities. As you saw yesterday, he's got a nice new assignment. And sometimes I just think it works for the individual and for the company.
So again, I think the healthcare business is still a key business for us, but it gives us a new set of eyes. And I think in John's case, the future makes sense for him as well.
I normally don't ask 3 questions, but what people are asking questions why put a non healthcare, non domain experience guy into a business like this. I mean, Jeff, you've said in the past that you really want more domain expertise within the businesses. And John is I think he's very good, obviously, but it came as a little bit strange to put a non healthcare guy in charge of the healthcare business. I mean, can you just explain that a little bit and then I'll pass it on?
Yes, yes, Scott. Look, I loved Flannery's global experience. I thought that was outstanding. He's got a great strategic mind. But he has more experience in health care than I had when I became the CEO of health care more than 10 years ago.
So I think he's got a nice really a nice background and has real hands on experience with it outside the United States.
Okay. Fair enough. Thanks guys. Thanks, Scott.
The next question comes from Nigel Coe. Please go ahead.
Thanks. Good morning.
Good morning, Nigel.
Yes. So I'm quite but obviously very pleased to get detail on Life Sciences, a real gem of an asset. But relatively small in the scheme of things. I'm wondering, Jeff, is this a business that you want to grow a bit more aggressively going forward from here?
Well, there's
2 maybe I'll start and then Kieran turn it over to you. I think in the bioprocess manufacturing, we've been able to do bolt on acquisitions behind organic growth. And I think that's been a great GE success factor over time. So I think that formula is one that we continue to make experience get experience with. And then the other side on the diagnostic pharma side, Nitro, that's more of
a heavy R and
D side, right? So I would say maybe bolt on acquisitions on the by process manufacturing, maybe some R and D collaborations, but I don't see a big deal. I don't know, Karen, why don't I turn to you?
Yes. I agree, Jeff. Look, I think the prognosis for growth for this business is actually very strong. We have a great portfolio, especially in the bioprocessing space. We've done some nice deals here to give ourselves the stuff to finish that I refer to in the pitch.
And there's no question that with the innovation in medicine moving more towards biology and really strong continued growth in monoclonal antibodies, we're in a great position to serve that market. And of course, if you look at what's happening in the emerging markets, especially in places like China and the need for infrastructure, I think our solutions are ideally suited to that. So I see a great opportunity for growth. From our standpoint, GE infrastructure globally gives us such a great reach into the markets, especially as with places like China, Middle East and Latin America that the infrastructure of GE gives us a great backbone to actually reach into these markets and do projects in difficult situations.
Okay. Thanks. And then Jeff as a follow on, expression confidence in the 7% organic for the year is obviously encouraging given the headlines. But you clearly have the backlog in place, but you talked about some deferrals into 4Q maybe 15% in Oil and Gas and perhaps Power. So I'm wondering to what extent are you concerned that perhaps these delays might push into 15% and therefore maybe 4Q comes in that weaker.
So what gives you confidence that you can get the $0.70 for the year?
I would circle back. I don't know Jeff why don't you the power stuff is really the hub of the kind of I guess our confidence. And I don't know Jeffrey you want to
Yes.
I mean we have a 4th quarter in front of us that we think is going to be very strong. Just for instance, year over year in Q4, our gas turbine shipments are going to be up more than 40% year over year, our wind shipments will be up more than 30% year over year, aero shipments 16%, even commercial military engines are going to be up mid double digits and we're looking for a 30% increase in locals year over year. So we're looking at a 4th quarter that we think is going to be very strong and we expect the Power business to be up substantially in the Q4.
And this stuff is Nigel that's already cited and financed and backlog and stuff like that. Yes.
For the most part, most of the gas turbines or 100% of the gas turbines are in backlog. We're in good shape on wind. So a good part of the volume that drives the Q4, we stand pretty firmly on. I would say, as I've said before, distributed power is the place where we've seen the most volatility. And based on the places we're selling, I think that's going to continue to play out that way.
But I think we feel good about a strong revenue quarter in the Q4.
That's very helpful. And just a quick follow on to that. So obviously based on equipment orders shipments in place for 4Q, normally that was debt margins, but you had service margins up so strong in this quarter. So I'm wondering can you maybe add some color on where you see the margin in 4Q as well?
Yes. We continue to progress on we expect to continue to progress on margins. We're on this journey to 17 plus percent. 2016, we got we're 50 basis points up 3rd quarter year to date. And we expect to be on that trajectory to get to 17% in 2016.
So we'd expect to continue to progress. I just think
tailwinds, the micro stuff, SG and A is good, value gap is good and I think the service productivity actually has good momentum as well.
Okay. Thanks Jeff.
The next question comes from Steven Winoker. Please go ahead.
Thanks and good morning.
Hey, Steve.
Hey. So maybe just it's been a little while now that you've been moving forward with Alstom. How's your thinking continue to progress? As the time has passed, we get another quarter of information behind us from Alstom and within your business. Where are you in the process?
And how are you thinking about the opportunity now versus a few months ago?
Steve, here's what again, we're just in the process itself. I mean, I think the regulatory stuff is all going per schedule. We haven't seen anything that is a surprise. They're in the same markets out there that you guys see every day. So some good, some bad on that, but not a big surprise there.
And I would say synergies the opportunities for synergies are probably greater than what we would have expected. And so we continue to work on that. So I think other than that I don't really there's not a lot more color I can add. Steve, I'll do more at the outlook meeting on Alstom. But I'd say, we still like what we see.
We still think there's good potential to run it as a combined entity better.
Okay. And then maybe just going diving a little bit into the order price profile on Slide 3. Obviously, pretty positive across most of those segments. And then we saw yet another quarter where healthcare was negative and kind of used to that at this point. And obviously, you called out the positives going on in Life Science.
So maybe just continue to give us a little understanding. Obviously, this is with it must be within systems and kind of what's happening? Is there any change here? How the Affordable Care Act you're seeing sort of play out so far? And maybe are you looking at this thing with a little more of a fresh eye these days?
Just some thoughts on that front.
Yes. So I think healthcare has been everything else being equal reasonably consistent for quite a long period of time. I mean we've seen quarter over quarter, year over year equipment pricing in the down 140 basis points roughly 150 basis points at a point in time. A little bit better on service. But I don't think we see anything that would suggest that the dynamics around those product cycles, the market behavior around price is changing.
So we're very focused on winning with technology and gaining share that way. And as I said, we had a reasonably for the first time this year with a reasonably strong equipment market here in the U. S. For us up 10%. We don't think the market was up that.
So we need to win on technology and execution. And I think the price dynamics of equipment and imaging are what they are and I don't see anything changing there.
Steve, there's a little bit that's of healthcare that's on the high-tech learning curve. So you get our Centimeters rates are equal to or greater even sometimes when the price is down because we're getting the cost down in the product as well. So it has a unique I would say visibility or in compared to some of our other products and technologies.
And our next question comes from Steve Tusa. Please go ahead.
Hey, guys. Good morning.
Hey, Steve.
So you got a big obviously a big equipment number coming through in the Q4. There will be a bit of a mix impact. I think you gave some color on the margin. It seems like it's going to be up. Maybe if I just look at normal seasonality, which has been pretty consistent the last few years in profits.
3Q to 4Q, you guys have been up about 37%, 38%. Will you be up kind of similarly in the Q4 from an operating profit industrial profit perspective, so somewhere around low 6s, 6.1 type of number for
the 4th quarter? Yes. We
or it will be better than normal seasonality?
No. We expect to be up obviously with the higher volume in the Q4 and we expect to continue to build on the cost gains we've had throughout the year both in terms of SG and A and corporate costs. So we're expecting an increase in profit. We expect to earn more in the Q4 for sure. And we're expecting strong kind of double digit revenue growth and we expect to continue to make progress on margins.
Right. So I guess from a will it be less than the 50 bps in the Q4 year over year? I mean it sounds like the mix is going to be tough.
We have a very heavy equipment quarter in the Q4 for sure. But as I said, we still we expect to make progress on margins for the year. We expect to stay on that trajectory to get to 17% plus in 2016.
So, we're
50 basis points in the Q3 and I would expect us to have a decent year.
Okay. And then one last question just on the turbine forecast for next year. You guys have the orders are sales are a little bit higher, orders are a little bit lower. Can you still grow your turbine shipments next year at this stage of the game?
Well, Steve, we'll give you a when we do the outlook meeting in December, we'll give you a little bit more color on kind of what we're thinking about 2015.
There's also going to be there's starting to be Steve a higher mix on big units as well. So you just we'll try to spell that all out. But you definitely see the market mixing towards the bigger units.
And our next question comes from Deane Dray. Please go ahead.
Thank you. Good morning, everyone.
Hey, Deane.
Hey, on Synchrony, the timing of the split off transaction, I know you're saying late 2015. It depends on regulatory approvals. But for modeling purposes, what do you suggest that we'd be using?
You're right. We're hopeful that we can get the exchange executed in late 2015. If I were modeling next year, I think I would just model Synchrony in the year and the exchange happening on Oneone of 2016. We can't tell you today exactly when in late 2015. I think for modeling purposes, I would just I would have it in for the year.
Great. That's helpful. And then showcasing Life Sciences today, we talked a lot about growth. Maybe you can share with us what the returns have been on these investments? And I don't know if you can still trace back to the returns on Amersham, but maybe start there?
Yes. We've looked at that. If you go back, I believe Amisham was done in 2004. When we go back and look at it, over the last roughly 10 years, we've in this business, we've collected about $10,000,000,000 of cash. Obviously, we had the Amersham investment.
We had several other investments along the way. We've got order of magnitude $13,000,000,000 invested. If you look at the business today at $1,100,000,000 or $1,200,000,000 of EBITDA, we think the multiple if you split it the way Karen described it, if you think about biopharma and research as a very high multiple of EBITDA based on transactions Mark and others have done and the diagnostics business being a lower multiple business, lower growth, lower margin. At 15.5 times those EBITDA numbers, you get a total value of call it $27,000,000,000 $17,000,000,000 what we got today roughly $10,000,000,000 of cash collected versus the $13,000,000,000 we got into it. You get a kind of something like a low teens IRR if you will life to date.
Now having said that, we think Karen's got his business accelerating from here. And we're very bullish on the biopharma space. And so we think that the returns from here forward are going to be more attractive than that. I don't know if I answered your question, but
And our next question comes from Jeff Sprague. Please go ahead.
Thank you. Good morning, everyone.
Hey, Jeff.
Good morning. Just a couple of quick ones. Jeff, you noted the unit outlook is a little cloudier on energy now, given the size of units are moving up. But I think the color in the quarter was thermal order dollars were down, but you had higher gigawatts in orders. Can you give us a little bit of color then what's really going on, on new unit pricing?
And does that imply that these first 8 units really go out at very, very tough pricing?
Sure. So it's definitely dynamic with the H. As we talked about, we've got 13 in backlog and we have customers that some customers that are rethinking what otherwise might have been F powered capacity with H powered capacity. Generally speaking, it's 1 H unit will replace 2 F units. So on the pricing front, the initial these are launch orders.
So the initial H orders are going to be tougher. No question about that. And we'll get down the cost curve as quickly as possible. But I think generally speaking, we think the technology has been incredibly well received and where we thought we'd be if not better given the early 2014 launch of the technology. So we feel like we're more competitive.
We had a great quarter in the U. S, took 11 units in the U. S. And the other
dynamic, Jeff, or that I would talk about, Jeff, is the mix of regions is probably better. So the U. S. Is probably the place where there's the most interest right now. And that has tended to be a slightly better margin type region for us.
So that's a positive.
All right. I'm just trying to understand kind of the disconnect between power and water order price up 1.3%.
I got you. I'm sorry, Jeff. Yes, I got it. I'm sorry. The H turbines because they're new, they're not in the OPI number.
There's no price to compare to last year.
Okay.
And I'm sorry. I misunderstood the question.
Well, you partially got what I wanted to know too, but there was kind of a second element implied. So I appreciate that. And then just on maybe stepping back to the Milestone deal. Maybe I wasn't thinking about it this way, but kind of focusing on the core and GE Capital, I didn't really think that meant M and A was on the table. I thought that was probably more an organic idea.
What is your appetite for M and A and capital moving forward?
So, Jeff, here's what I'd say. This is a strike zone deal for what we do in GECAS. We know how to do this. It's an operating lease business. It matches very well with our footprint geographically on where we have resources and operating capabilities deployed.
We know how to manage businesses like this that are very asset intensive and we really like what the returns look like over time. It also lines up like GECAS does with our Aviation business. So a very high percentage of this portfolio are GE Powered Helicopters and we think that provides a lot of synergy. So we've been, I think, reasonably consistent saying that we were going to continue to grow our core mid market and industrially aligned verticals as we move forward. At the same time, we are very aggressively working the $135,000,000,000 of non strategic parts of the portfolio and we've got a lot of things in motion there.
So I think the other way you need to think about it a bit is we've got capital available and we'd rather deploy the capital at very attractive returns than put the capital to work in a bank at a negative carry. So I think this makes all the sense in the world and I don't think in any ways it inconsistent with anything we or Keith have communicated.
Thank you. And our next question comes from John Inch. Please go ahead.
Thanks. Good morning, everyone. Just given the puts and takes in Power and Water between orders and heavy shipment and I know there's it's got such a big influence on cash flow, Jeff Orenstein. Are we thinking that,
Today as we sit here today, I would say we expect to be above the midpoint of the range. So we've got a big Q4 in front of us, no question about it. If you think about last year, we did $5,500,000,000 of CFOA industrially in the Q4. Based on the earnings improvement, what we expect to get from a cap working capital improvement by liquidating all that inventory in the Q4, we think we've got a path to be about midpoint of the range between $5,000,000 We'd have
much higher industrial earnings, John and much higher shipments. So we ought to have a good Q4 I'd say on cash.
Okay. And then FX, one of the dynamics of GE that makes you different is just the very high value of your equipment versus other industrial companies. So it could be either of you. I mean, does FX and the decline of the euro and the yen, does that open a door to Mitsubishi and Siemens to really become much more aggressive on the OE pricing that would influence sort of the dynamic going forward? I mean, how are you thinking about it based on everything you know so far?
I'd say, listen, a great part of our industrial footprint here is that we make product all over the world. So we can be flexible about where we make product. If FX becomes that big an issue, we can be flexible about where we make product. So I don't think we're anticipating FX being a competitive issue for us.
I would echo that, John. I think the dynamic is really one where we've got the right global footprint to do whatever ultimately we need to do.
And our last question comes from Andrew Van. Please go ahead.
Yes, good morning.
Hi, Andrew.
Just a question. You sort of highlighted H turbines being successful and some of your customers are really looking into them. But you also said that it requires some re permitting. How disruptive could it be? And could we see a pause in North American cycle because of that?
No. I think in North America, I think a lot of that planning is already underway. So I would say Andrew not much. I think the whole product line is well positioned and it's great to have a large block turbine, but we also are still seeing activity on the other turbines as well. So I think I don't know, other than the 13, we've got another 15 Hs that are out there kind of being globally in the which should enter the backlog sometime imminently.
And so we're just seeing pretty good momentum there. And I don't see it disrupting the let's say the flow from commitment to order to revenue.
Sure. And if I could just squeeze one more in. Measurement and Control, could you just give us a little bit more color how it's improving and where we are on the call within that division?
So the organic we've done some dispositions there Andrew. So I think the organic is up mid single digits kind of range 7% something like that.
Yeah.
And so we've seen that be pretty decent in the last quarter.
Yeah. So I would say excluding the disposition impacts, the M and C business has started to turn a little bit organically. Orders in the Q3 up 7%, revenue as I said in the script were up 8%, and they're getting some operating leverage. So we've seen a little bit more strength in oil and gas applications and industrial applications around controls. And so we're hopeful that we're trending more positively here in the M and C business.
As you know that's important. It's a very profitable business for oil and gas.
Matt, I want to just before we cut off today, I think we talked a lot about execution in the quarter, but I wanted to elevate just a bit. We really remain on track to get the company at 75 percent industrial, 25 percent gs capital, while growing EPS every year, this year, next year and into the future. And I think in addition to the good execution of the quarter, the strategic moves the company continues to make to with Alstom appliances remixing GE Capital continues to make this a more valuable company. So I think that's in addition to the current quarter operations. I think we're executing on the portfolio to create a much more valuable company.
Great. Thank you, Jeff. A couple of quick announcements. The replay of today's webcast will be available this afternoon on our website. We will be distributing our quarterly supplemental data for GE Capital later today.
We have 2 upcoming investor events. The first on Tuesday, December 16, we'll hold our Annual Outlook Meeting in New York City. And on Friday, January 23, we'll hold our Q4 2014 earnings webcast. As always, we'll be available today to take your questions. Thank you.
Thank you, ladies and gentlemen. This concludes your conference call. Thank you for participating today. You may now disconnect.