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. If at any time during the call you require assistance, please press star followed by the zero and a conference coordinator will be happy to assist you. If you experience issues with the slides refreshing or there appears to be delays in the slide advancement, please hit F5 on your keyboard to refresh. As a reminder, this conference is being recorded. I would now like to turn the program over to your host for today's conference, Matthew Cribbins, Vice President of Investor Communications. Please proceed.
Great. Thank you. Good morning and welcome everyone. We are pleased to host today's third quarter 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. I'd like to turn it over to our Chairman and CEO, Jeff Immelt.
Thanks, Matt. We continue to plan against a global macro backdrop that is volatile and one where some economic projections have recently been revised downward. 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. 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've 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 benefit from our simplification efforts and are on track for more than $1 billion of cost out for the year. Margins improved in six of seven businesses, and our cost out momentum is strong. We remain on track for CFOA for the year. We're running the company well. 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. We've invested in platforms like Milestone Aviation, a helicopter leasing business linked to GE Aviation. 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.
The Synchrony spin, Appliances sale, and Alstom acquisition from the second quarter 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% 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 third quarter. Technology drives high margin share, and we took orders for 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, GEnx share growth, and the GE9X launch orders. For the first time in a while, power and water equipment orders grew in the United States, up 41%.
We now have 13 H turbines in backlog. We're enjoying good success in oil and gas, with subsea orders growing by 63% and the launch of the 20K 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 five of six businesses. Aviation commercial spares were up 29%, and Powergen 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 billion in 2014. Orders growth was broad-based geographically. U.S. orders were strong, with growth of 25%, and growth markets expanded by 34%, with five of nine 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 billion, up more than $20 billion 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 billion. Nonetheless, we're at record highs. Strong orders position GE for sustained growth in the fourth quarter and beyond. Segment profits grew by 9% with six of seven 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.
Power and water had tough comps in the third quarter. We'll have a very strong fourth quarter shipments versus last year. 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. 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've generated $7.2 billion of CFOA year to date and are on track for $14 billion-$17 billion for the year.
For the quarter, we grew CFOA by 41%. GE Capital dividends are on track for $3 billion in the year. We will generate substantial CFOA in the fourth 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 billion for the year. In addition, we expect the Synchrony split to take GE shares below nine and a half billion 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 $3.7 billion 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 billion, since most, 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 manufacture 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 diagnoses 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. Today, these drugs make up six of the top 10 revenue-generating medicines. Also, in the emerging markets, particularly China, there is a growing market need for generic bio drugs called biosimilars. This has the potential to be a significant growth opportunity over the next five to 10 years.
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 two 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 Amersham acquisition in 2004, and we've continued to build value through successful R&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. That brings me on to how critical we are for the biopharmaceutical manufacturing industry.
Over the past six years, biological medicine sales have grown at 10% per annum to $170 billion, 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 processes of these products. This manufacture 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 billion market where we have built a leading position, all starting from the pharma 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 Xcellerex, which added fermenters and disposable technologies to the portfolio, and recently HyClone cell media, part of the billion-dollar 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 FlexFactory and KUBio solutions can provide a complete factory in less than half the time required for a traditional plant, 36 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 low revenues today, but we see it as having the potential to create a billion-dollar 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 in diagnostic and research products. We leverage 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. We are generating in excess of $1 billion free cash flow. Overall, the deal return for this business is in the low teens.
This is a growing and valuable business within GE. We continue to see a healthy pipeline and have great confidence in the future growth of the business. Now I'd like to hand over to Jeff Bornstein.
Thanks, Kieran. I'll start with a third quarter summary. We had revenues of $36.2 billion, up 1% from the third quarter of 2013. Industrial sales of $26 billion were up 3%, and GE Capital revenues of $10.5 billion were down 1%. Operating earnings of $3.8 billion were up 3% in the quarter. Operating EPS 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 truing up taxes on the Grey Zone payment. As Jeff said, CFOA year-to-date was $7.2 billion. We had industrial CFOA of $5 billion and received $2.2 billion of dividends from GE Capital. In the quarter, industrial generated $3 billion of CFOA, up $900 million versus the third quarter of 2013.
For the year, we're on track to deliver on the $14 billion-$17 billion 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. That was consistent with a 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%. 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, $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 million of the total $435 million 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 $1.4 billion in restructuring and other charges, with about $1.2 billion incurred through the first three quarters of the year.
We had gains this year of about $0.01 from the Wayne disposition. For the year, we're expecting restructuring net 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 a year and a half. Approximately 55% of these projects relate to product and operating costs, and the rest is associated with SG&A. On the right side, I'll give you a quick update on two important cost-out commitments. First, on structural SG&A, we've taken out $674 million year to date on our way to over $1 billion for the year. As a result of these actions, industrial SG&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 million-plus of cost out in the fourth 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 million through simplification efforts at corporate headquarters, GGO, and reductions in our social costs. For the year, we expect to deliver more than the $500 million target we established at the start of the year. As Jeff said, industrial segment op profit is up 10% year to date. When you look at industrial, including corporate, 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. I'll start with the segment summaries. First, power and water.
Orders in the quarter of $6.4 billion 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. Distributed power continues to see projects push. We booked about 30% of the units that pushed in the second quarter but saw some projects push to the fourth quarter 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 but higher on a gigawatt basis, driven by the large H-Class order in the U.S. from Exelon. This brings our total H units in backlog to 13.
We now expect total year gas turbine unit orders to be about 105-110 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 orders. Service orders in the quarter were up 10%. We had strong orders for upgrades and transactional outage volume, as discussed in the second quarter call. AGPs in the quarter were 18 versus 15 a year ago. Revenue of $6.4 billion 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%. 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 85-90 we planned. Service revenues in the quarter of $2.9 billion were up 6% on higher AGPs and upgrades. From an operating profit perspective, we were up just shy of $1.2 billion, was down 8% driven by negative price and mix from higher wind and lower distributed power, which more than offset cost benefits, including SG&A, which was down 10%. Margins were down 110 basis points in the quarter.
For the fourth quarter, 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 second quarter 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 $4.9 billion 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&S, which was down 12% in the quarter.
Service orders were up 6% with strength in subsea up 27% and turbo machinery up 8%, partially offset by Measurement & Control, which was down 8%. Organically, Measurement & Control was up 7%, with demand for control solutions improving in both industrial and oil and gas applications. Revenues of $4.6 billion grew 7% year-over-year, with equipment revenue higher by 9% and services up 4%. Operating profit of $660 million was up 27% on strong cost performance, project execution, and a positive value gap, offset by lower Measurement & Control mix. Margin rates expanded in the quarter 240 basis points. Our outlook for the year remains intact for the business with double-digit op profit growth. 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 fourth quarter.
As you know, orders in this space are very volatile. We continue to see some big projects pushed to the right. Next, I'll do GE Aviation and GE Healthcare, starting with GE Aviation. Travel demand continues to grow with RPKs August year-to-date up 5.1% domestically and up 6.3% internationally. Orders for GE Aviation were very strong in the quarter, up 30%, with equipment orders up 35% to $6.8 billion and services higher by 20%. Equipment strength was led by $3.8 billion of GE9X orders for Emirates, Etihad, and Lufthansa. We also won $1.3 billion of CFM LEAP orders, bringing our program-to-date win rate on the next end- narrow-bodies to 78%. Military equipment orders were down 40%. They were 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 $30.9 million a day, partially offset by military spares weakness. Revenues in the quarter is up $5.7 billion, were up 6%, driven by commercial equipment revenue up 22%, military up 8%, 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 GEnx shipments, with 65 units in the quarter, up 39 from the third quarter of 2013. SG&A ex Avio was down 4% in the quarter. Margins expanded 190 basis points. Overall, David and the GE Aviation team delivered a strong quarter. We expect the GE Aviation business to continue to expand its technology leadership.
GEnx shipments will be higher in the fourth quarter. We still expect to ship about 300 units for the year. In GE Healthcare, orders were up 1%, with better growth in the U.S., which was up 3%. Europe was up 4%. Latin America was up 18%. This was offset by Japan down 12% and the Middle East down 15% in the quarter. Equipment orders of $2.7 billion 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, more modestly. China ACS equipment orders were up 6% in the third quarter. They're up 11% year-to-date. China growth was slower, driven by tender decision delays in public hospitals.
In Kieran'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%. Op profit grew 9%, driven by volume and strong cost productivity, offset by negative price. SG&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, and 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%, led by equipment orders up three times or $2.1 billion. The business took orders for more than 1,000 Tier 4 compliant locomotives to be delivered over the next three years. Locomotive loading is nearing current capacity levels for 2015. Car loads 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 loco volume and cost productivity, and SG&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 and 2017, and we feel great about our ability to execute against this orders 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 $1.8 billion were down 1%. Op profit of $59 million was up three times on strong cost and restructuring execution. Appliances and lighting. The core industry within appliances was up 9% in the third quarter. Retail was up 9% and contract up 7%.
Revenue in the quarter was up 1% to $2.1 billion, with appliances up 2% and lighting down 2%. Appliance revenue was driven by volume up 3%, while strong LED growth of 59% in lighting was more than offset by traditional product declines. Operating profit of $88 million was higher by 14% on strong productivity, and SG&A was down 11% and margins expanded 50 basis points. As we announced in early September, we reached an agreement with Electrolux to sell our appliance business. We hope to close that transaction in mid-2015. 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 off 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 $10.5 billion was down 1%, primarily from lower assets, partially offset by higher gains. GE Capital's net income of $1.5 billion 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 third to the fourth quarter. ENI of $365 billion was down $19 billion or 5% from last year and down $7 billion sequentially. Non-strategic ENI was down $11 billion 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 a Basel I 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 billion of cash, with $15 billion attributable to Synchrony. Our commercial paper program remains stable at $25 billion, and we have substantially completed our long-term debt issuance for the year at $9.4 billion. 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 billion of assets flat to last year.
On-board core volume was $10 billion, 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 of both lending and equipment were largely in line with the first half of the year. Earnings of $617 million were up 29%, driven by lower marks and impairments, primarily in our corporate air book, as well as higher gains in tax benefits. The consumer segment ended the quarter with $141 billion of assets, up 4% from last year, driven by Synchrony. Net income was $621 million, down 31%. As I mentioned earlier, the Synchrony team will cover all the details of their quarter in a call later this morning.
Our share of their earnings was $509 million, down 25%, 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 billion were down 9% versus prior year. The equity book is down 28% from a year ago to $12 billion. Net income of $175 million 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 half a billion dollars for $122 million in gains. In the verticals, GECAS earned $133 million, down 23% from lower assets and tax benefits.
Impairments, including our annual review completed this quarter, resulted in $197 million after-tax impact, roughly in line with the third quarter 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 the fourth quarter to the GECAS impairment process. New volume was much stronger at $1.4 billion, 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 million, 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 fourth quarter, we expect GE Capital to be about $1.8 billion in earnings, including the gain from exiting of our Nordics business. We continue to aggressively work on opportunities to reduce the size of our non-strategic portfolio, and these transactions could impact earnings and the tax rate in the fourth quarter. Overall, Keith and team continue to execute the portfolio strategy and deliver solid operating results. 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 fourth quarter due to the timing of the Nordic Consumer Finance platform sale. Corporate is on track as expected, as expected, corporate has been a drag in 2014 because our restructuring investments exceed gains. This will be a real tailwind in 2015. Cash and revenues remain on track, we expect fourth quarter organic revenue to be robust. Despite a volatile global environment, GE expects to have a good fourth quarter and deliver on our 2014 framework. In addition, we're 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. 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?
Ladies and gentlemen, if you wish to ask a question, please press star one on your telephone. If your question has been answered or you wish to withdraw your question, please press star two. Our first question comes from Scott Davis. Please go ahead.
Guys.
Hey, Scott.
Appreciate the detail on the presentation. It's really helpful. Guys, I wanted to get your sense. If you look at the markets, it's kind of telling you that the world's falling apart. We see the numbers here, and they look pretty darn good overall, and overall, in the space haven't been that bad. What are your customers telling you? Are we at a risk of a real pullback in customer activity as we get into the fourth quarter just based on this new growth contagion that's out there, this growth fear?
Scott, just to give you a view of the world. Again, there's certainly a lot going on. I would say the U.S. is probably the best we've seen it since the financial crisis. 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 industrial companies haven't counted on Europe and Japan for much incremental growth. If you go across the emerging markets, two weeks ago, I was in the Middle East, North Africa, still pretty healthy, robust. China, I think, is more of a micro story than macro story now. Aviation, healthcare, very strong. If you're in the right industries, very robust. Mexico, better.
If you look at it geographically, Scott, I think it's kind of this slow growth pattern with volatility, but not a lot different than what we've seen in the past. Kind of industry by industry, aviation remains strong, transportation remains strong. Power depends on what segment you're in. Oil and gas, you definitely have more caution in oil and gas. 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. There was already caution before the last, I would say, month or so around there. I think it fits a pattern that we've seen the last couple of years, and the underlying activity is still reasonably healthy, but not universal. There's some parts that are clearly stronger than others.
Okay. Fair enough. Just healthcare, 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. The healthcare numbers were pretty good. What was it, Jeff, that you didn't like about the direction of what's going on in healthcare that really catalyzed a change there?
Scott, these things were always individual by individual. I think John Dineen was a really good leader here. I think he's got good opportunities. As you saw yesterday, he's got a nice new assignment. Sometimes I just think it works for the individual and for the company. Again, I think the healthcare business is still a key business for us. 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 three questions, but people are asking questions why put a non-healthcare, non-domain experienced guy into a business like this? Jeff, you've said in the past that you really want more domain expertise within the businesses, and John, 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 GE Healthcare business. Can you just explain that a little bit, and then I'll pass it on.
Yeah, Scott, look, I loved Sanofi's global experience. I thought that was outstanding. He's got a great strategic mind, but he has more experience in GE Healthcare than I had when I became the CEO of GE Healthcare more than 10 years ago. I think he's got a really nice background and has real hands-on experience with it outside the U.S.
Okay. Fair enough. Thanks, guys.
Thanks, Scott.
The next question comes from Nigel Coe. Please go ahead.
Thanks. Good morning.
Hey, Nigel.
Yeah. I'm obviously very pleased to get detail on life sciences, a real gem of an asset. 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, 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. I think that formula is one that we continue to get experience with. The other side on the diagnostic pharma side, Nigel, that's more of a heavy R&D side. I would say maybe bolt-on acquisitions on the bioprocess manufacturing, maybe some R&D collaborations, but I don't see a big deal. I don't know, Kieran, why don't I turn to you?
Yeah, 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 this start to finish that I referred to in the pitch. 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. 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 for that. I see a great opportunity for growth. From our standpoint, the GE infrastructure globally gives us such a great reach into the markets, especially with places like China, the 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. Jeff, as a follow-on, expressing confidence in the 7% organic for the year is obviously encouraging given the headlines. You clearly have the backlog in place, but you talked about some deferrals into 4Q, maybe 2015 in oil and gas and perhaps power. I'm wondering to what extent that you're concerned that perhaps these delays might push into 2015, and therefore maybe 4Q comes in a bit weaker. What gives you confidence that GE can get the 7% for the year?
I would circle back on that, Jeff. The Power stuff is really the hub of our confidence. I don't know, Jeffrey, you want to-
Yeah. We have a fourth quarter in front of us that we think is going to be very strong. Just for instance, year-over-year in the fourth quarter, 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 and military engines are going to be up mid double digits, and we're looking for a 30% increase in locos year-over-year. We're looking at a fourth quarter that we think is going to be very strong, and we expect the Power Business to be up substantially in the fourth quarter.
This stuff is nice, that's already cited and financed and in backlog and stuff like that, so.
Yeah. 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. A good part of the volume that drives the fourth quarter, 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. Based on the places we're selling, I think that's going to continue to play out that way. I think we feel good about a strong revenue quarter in the fourth quarter.
No, that's very helpful. Just a quick follow-on to that. Obviously, based on equipment orders, shipments in place for Q4. Normally that would get margins, but you had service margins up so strong in this quarter. I'm wondering, can you maybe add some color on what you see for margin Q4 as well?
We expect to continue to progress on margins. We are on this journey to 17%+. In 2016, we are 50 basis points up third quarter year-to-date, and we expect to be on that trajectory to get to 17% in 2016. We would expect to continue to progress.
I just think tailwinds, the micro stuff, SG&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. It's been a little while now that you've been moving forward with Alstom. How's your thinking continued 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, again, we're just in the process itself. 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. I would say synergies, the opportunities for synergies are probably greater than what we would have expected, and we continue to work on that. I think other than that, 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. Maybe just diving a little bit into the order price profile on slide three. Obviously, pretty positive across most of those segments. We saw yet another quarter where healthcare was negative and kind of used to that at this point. Obviously, you called out the positives going on in life science. Maybe just continue to give us a little understanding. Obviously, this must be within systems and kind of what's happening. Is there any change here? How the Affordable Care Act, these things sort of play out so far? Maybe, are you looking at this thing with a little more of a fresh eye these days? Just some thoughts on that front.
Yeah. I think healthcare has been, everything else being equal, reasonably consistent for quite a long period of time. 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. I don't think we see anything that would suggest that the dynamics around those product cycles, the market behavior around price is changing. We're very focused on winning with technology and gaining share that way. As I said, for the first time this year, we had a reasonably strong equipment market here in the U.S. for us, up 10%. We don't think the market was up that. 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 of healthcare that's on the high-tech learning curve. Our CM 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. It has a unique perk, I would say, visibility in compared to some of our other products and technologies.
Our next question comes from Steve Tusa. Please go ahead.
Hey, guys. Good morning.
Hey, Steve.
You got, obviously, a big equipment number coming through in the fourth quarter. There'll be a bit of a mix impact. I think you gave some color on the margin. 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 fourth quarter from an operating profit, industrial profit perspective? Somewhere around low sixes, 6.1 type of number for the fourth quarter?
Yeah.
It will be better than normal seasonality?
No, we expect to be up, obviously, with the higher volume in the fourth quarter, and we expect to continue to build on the cost gains we've had throughout the year, both in terms of SG&A and corporate costs. We expect to earn more in the fourth quarter, for sure. We're expecting strong kind of double-digit revenue growth and we expect to continue to make progress on margins.
Right. Will it be less than the 50 basis points in the fourth quarter year-over-year?
Well-
the mix is going to be tough.
We have a very heavy equipment quarter in the fourth quarter, for sure. As I said, we expect to make progress on margins for the year. We expect to stay on that trajectory to get to 17%+ in 2016.
Okay
50 basis points for the third quarter, I would expect us to have a decent year.
Okay. One last question, just on the turbine forecast for next year. The orders or 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, 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 starting to be, Steve, a higher mix on big units as well. We'll try to spell that all out, you definitely see the market mixing towards the bigger units.
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. For modeling purposes, what do you suggest that we 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 01/01/2016. We can't tell you today exactly when in late 2015. I think for modeling purposes, I would have it in for the year.
Great. That's helpful. 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, maybe start there.
Yeah. We've looked at that. If you go back, I believe Amersham was done in 2004. When we go back and look at it, over the last roughly 10 years, in this business, we've collected about $10 billion of cash. Obviously, we had the Amersham investment. We had several other investments along the way. We've got order of magnitude $13 billion invested. If you look at the business today at $1.1 billion to $1.2 billion of EBITDA, we think the multiple, if you split it the way Kieran 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 billion, $17 billion for what we got today, roughly $10 billion of cash collected versus the $13 billion we got into it. You get something like a low teens IRR, if you will, life to date. Now, having said that, we think Kieran's got his business accelerating from here, and we're very bullish on the biopharma space. 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
Our next question comes from Jeff Sprague. Please go ahead.
Thank you. Good morning, everyone.
Hey, Jeff.
Good morning. Just a couple quick ones. Jeff, you noted the unit outlook is a little cloudier on Energy now, given the size of units are moving up. I think the color in the quarter was thermal order dollars were down, you had higher gigawatts in orders. Can you give us a little bit of color then what's really going on new unit pricing? Does that imply that these first H units really go out at very tough pricing?
Well, sure. It's definitely a dynamic with the H. As we talked about, we've got 13 in backlog, and we have some customers that are rethinking what otherwise might have been F powered capacity with H powered capacity. Generally speaking, one H unit will replace two F units. On the pricing front, these are launch orders, so the initial H orders are going to be tougher, no question about that. We'll get down the cost curve as quickly as possible. I think generally speaking, we think the technology has been incredibly well received and we're where we thought we would be, if not better, given the early 2014 launch of the technology. We feel like we're more competitive. We had a great quarter in the U.S., took 11 units in the U.S.
I think the other dynamic, Jeff, that I would talk about, Jeff, is the mix of regions is probably better. 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. That's a positive.
All right. I'm just trying to understand the disconnect between Power & Water order price, up 1.3%.
I got you. I'm sorry, Jeff. Yeah, I get it. I'm sorry. The H-class turbines, because they're new, they're not in the OPI number. There's no price to compare to last year.
Okay.
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. I appreciate that. 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 in GE Capital, I didn't really think that meant M&A was on the table. I thought that was probably more an organic idea. What is your appetite for M&A and capital moving forward?
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. A very high percentage of this portfolio are GE powered helicopters, and we think that provides a lot of synergy. 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 billion of non-strategic parts of the portfolio, and we've got a lot of things in motion there. 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. I think this makes all the sense in the world, and I don't think in any way is it inconsistent with anything we or Keith have communicated.
Thank you. Our next question comes from John Inch. Please go ahead.
Thanks. Good morning, everyone. Given the puts and takes in power and water between orders and heavy shipment, and I know it's got such a big influence on cash flow. Jeff Bornstein, are we thinking that operating cash for the year is going to be kind of towards the lower end of 17, or is it too close to call?
As we sit here today, I would say we expect to be above the midpoint of the range. We've got a big fourth quarter in front of us, no question about it. If you think about last year, well, we did $5.5 billion of CFOA industrially in the fourth quarter. Based on the earnings improvement, what we expect to get from a working capital improvement by liquidating all that inventory in the fourth quarter, we think we've got a path to be about midpoint of the range between
We're going to have much higher industrial earnings, John, and much higher shipments. We ought to have a good fourth quarter, I'd say, on cash.
Okay. FX. One of the dynamics of GE that makes you different is just the very high value of your equipment versus other industrial companies. It could be for either of you, 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 could influence sort of the dynamic going forward? 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. 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. 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.
Our last question comes from Andrew Levin. Please go ahead.
Hi. Yes, good morning.
Hey, Andrew.
Just a question. You sort of highlighted H-Class turbines being successful, and some of your customers are really looking into them. 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?
In North America, I think a lot of that planning is already underway. 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. I think, other than the 13, we've got another 15 Hs that are out there.
Globally.
Globally, which should enter the backlog sometime imminently. We're just seeing pretty good momentum there, and I don't see it disrupting, let's say, the flow from commitment to order to revenue.
Sure. If I could just squeeze one more in. Measurement & 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?
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.
We've seen that be pretty decent in the last quarter.
Yeah. I would say, excluding the disposition impacts, the M&C business has started to turn a little bit organically. Orders in the third quarter are up 7. Revenue, as I said in the script, we're up 8. They're getting some operating leverage. We've seen a little bit more strength in oil and gas applications and industrial applications around controls. We're hopeful that we're trending more positively here in the M&C business. As you know, that's important. It's a very profitable business for oil and gas.
Matt, I want to-
Sure.
Before we cut off today. I think we talked a lot about execution in the quarter, I wanted to elevate just a bit. We really remain on track to get the company at 75% industrial, 25% GE Capital, while growing EPS every year, this year, next year, and into the future. I think in addition to the good execution of the quarter, the strategic moves the company continues to make with Alstom, Appliances, remixing GE Capital, continues to make this a more valuable company. 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'll be distributing our quarterly supplemental data for GE Capital later today. We have two upcoming investor events. The first on Tuesday, December 16th. We'll hold our annual outlook meeting in New York City. On Friday, January 23rd, we'll hold our fourth quarter 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.