Good day, ladies and gentlemen, and welcome to the General Electric Second Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen only mode. My name is Christine, and I will 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 Krievans, Vice President of Investor Communications.
Please proceed.
Thank you, Christine. Good morning, and welcome, everyone. We are pleased to host today's Q2 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 Senior Vice President, Power and Water, Steve Bowles. We've asked Steve to join today to talk about the Alstom deal. Now I'd like to turn it over to our Chairman and CEO, Jeff Immelt.
Great, Matt. Thanks. Good morning, everyone. Gee, you had a good quarter in a generally improving environment. We saw solid economic growth across most of our segments.
Some economic indicators are really quite strong like rail loadings, revenue passenger miles, demand for commercial credit and the appliance market strengthened during the quarter. Global markets were also generally positive. GE ended the quarter with a record backlog of $246,000,000,000 A particular highlight was the payback of our investments in technology. We recorded $36,000,000,000 of wins at the front of our air show. Transportation is prospering because of our commitment to push ahead with the Tier 4 locomotive.
Healthcare is gaining share behind several big product launches. In oil and gas, the same brought interest in new subsea innovations. There's still a few tough markets like U. S. Healthcare and mining, but the economic trend is positive.
At the half, execution is in line with our key goals. Industrial segment growth is up 10% with 6% organic revenue growth and margin expansion of 30 basis points. We're on track for $7,000,000,000 of capital earnings with a $3,000,000,000 dividend. Capital allocation remains balanced and disciplined. We've returned $5,900,000,000 to investors through dividends and buyback.
We're improving the GE portfolio as well. The Alstom acquisition will generate attractive growth in returns, while helping GE to accelerate our achievement of 75 percent industrial earnings. Retail finance remains on track for an IPO by the end of July. The GE team is executing both operationally and strategically. Orders grew by 4% with slightly positive pricing.
Backlog is at a record high, as I said, of $246,000,000,000 up $23,000,000,000 from last year. This was the strongest service performance in several years with growth of 14%. Aviation spares grew by 16% and Power Gen Services grew by 13%. Most of our service businesses are expanding. Transportation orders were up close to 40% overall and we've positioned the business to succeed in the future.
We experienced some equipment order push outs, particularly in wind and oil and gas and subsea. However, our rolling 4 quarter equipment growth is up 7%. And growth markets remain a highlight with 14% order expansion and growth in 6 of 9 regions. Our orders and backlog give us confidence in the second half in twenty Our operating execution was good. We had 7% revenue growth in the quarter with 20 basis points of margin expansion.
We're gaining share. Farnborough made a statement about GE's position in aviation with $36,000,000,000 in wins. We won nearly 90% of all next gen narrow body announcements. As was reported earlier in the week, GE remains substantially ahead on the Tier 4 locomotive. We have 264 Tier 4 Locos in backlog for 2015 2016 with more on the way and granted this was 0 in the Q1, so our momentum is growing.
We have 9 high efficiency Large Block H turbines in backlog with many more in the pipeline. In oil and gas, we sold the first 20 ks PSI drilling system to Maersk. We have $55,000,000 backlog for the industry leading Revolution CT scanner. For the quarter, equipment revenue grew by 8% and service revenue grew by 5% and 6 to 9 growth regions expanded in the quarter. In addition, a few of our adjacencies were performing quite well.
Life sciences had order growth of 10%, while water grew by 11%. And we now expect $1,300,000,000 of productivity revenue for 2014, slightly ahead of our operating plan. Simplification and value gap continue to drive margins. We're reducing the structural cost of GE. For the year, simplification, value gap and R and D efficiency should continue to be positive.
In addition, we saw a nice margin turnaround in Energy Management and Appliances and Lighting, while Transportation and Healthcare are growing margins despite tough markets. We will continue to be negatively impacted by equipment mix for the year, but we're on track for solid margin improvement in 2014 overall with expansion in most of our businesses. And in the quarter, 6 of our 7 industrial segments had earnings growth. So really a good execution quarter. Our capital allocation is in line with plan.
Total CFOA is $3,400,000,000 down 9% year to date. Industrial CFOA is above last year in total, but below if you add back the impact of the NBCU taxes last year. CFOA is impacted by timing and long cycle orders in wind, driven by the lack of PTC clarity in an oil and gas. Additionally, we have more inventory for second half shipments given the substantially higher organic revenue growth we expect in 2014 versus 2013. We'll see strong improvement capital in the Q3 and second half.
As previously communicated, we expect the capital dividend to be about $3,000,000,000 in 20.14. We ended the quarter with $87,000,000,000 of cash and we expect CFOA for 20.14 to be in the $14,000,000,000 to $17,000,000,000 range as outlined in our 2014 framework. We have a similar first half, second half profile that we had in 20 13. Capital allocation continues to be disciplined and balanced. We have raised the dividend by 16% for 20 14.
Filed the Red Heron for RFS today, targeting a late July IPO
and this
should raise roughly $3,100,000,000 at the midpoint price for 15% of the company. And we're targeting $4,000,000,000 of dispositions for the year. In an important move for GE, the Austin deal is announced and signed targeting a 2015 close. This is an exciting opportunity for GE and our investors. By 2016, we expect this will add $0.06 to $0.09 per share and allow the company to have 75% of our earnings from industrial.
The synergies and returns are excellent. And Steve Bowles is here this morning to give you an update on Alstom. So let me turn it over to Steve.
Thanks, Jeff. We've had a lot going on with respect to the Alstom transaction and I wanted to update you on the deal, our revised structure and our execution plans. As you recall from our initial announcement on April 30, the acquisition of Alstom's Power and Grid Businesses would represent the largest single acquisition in GE's history. At the time, we said it was subject to several reviews including our discussion with the French government. Those discussions have led now to our revised offer.
We are happy with the outcome and have the unanimous recommendation of the Alstom Board and the endorsement of the French government. A key point that I would like to stress is the deal economics remained the same and the price did not go up. Our deal is $13,500,000,000 of enterprise value at 7.9 times EBITDA and Alstom still retains its transport business. We have however revised the initial deal structure and payment terms. We will be selling our signaling business to Alstom Transport and creating 3 joint ventures.
GE will have operational control in these joint ventures and Alstom will investing about $3,500,000,000 for its stakes. I will give further details on the ventures in a moment. Although the structure has been modified, our strategic rationale has not changed. The power sector is core to GE's future and it has excellent long term growth prospects. Alstom Power and Grid are businesses we know and like and are being acquired at a good time in the cycle.
What we like the most about Alstom is it complements us in technology, geography and they have great talent. It brings us broader scope and power, a larger installed base for services growth and larger presence in emerging markets. Together with GE, this creates opportunities to improve our combined performance and it's in our sweet spot. Also, we continue to see good cost synergy opportunities and our plans remain intact. Overall, this is an attractive investment in a core business, which expands our competitive capabilities and is accretive to GE earnings in year 1 with high teens IRR.
On the next page, I want to ground you on the new deal structure. First, the changes do not impact the core businesses, which are Alstom's thermal assets. We will still own close to 100 percent of Alstom's gas and steam equipment and service businesses. About 86% of our synergies are in these businesses. With respect to the joint ventures, Alstom will be the investor, but GE will have operational control and we still have clear visibility to the remaining synergies.
The first JV The first JV is renewables. It's made up of Alstom's offshore wind and leading hydro business as well as some of their new renewable technologies. GE and Alstom will each own 50% of this joint venture. Onshore wind from Alstom will go directly into GE at 100 percent. The second JV is the combination of GE's digital energy business and Alstom's grid business.
GE and Alstom will each own 50% of the joint venture. And the 3rd joint venture is Global Nuclear and French Steam. We knew all along that with the majority of electricity generation in France being from nuclear power, there would be nuclear sovereignty issues. This venture includes Alstom's production and servicing equipment for conventional island of nuclear power plants and development and sales of related new equipment globally. It also includes Alstom's steam turbine equipment and servicing applications for France.
In this joint venture, GE will own 80% of the economics and Alstom 20%, but Alstom will still have 50% of the voting interest. The sovereignty issues are addressed through a preferred share held by the French state with certain governance rights. In each JV, GE has control, will appoint the CEO and expects to consolidate. Alstom will have standard minority governance rights and will have put options with a minimum floor value at defined times. These joint ventures will not impact our ability to achieve our synergies.
On top of these ventures, one additional transaction is that we agreed to sell our signaling business, a part of GE Transportation. It's a good deal for both parties. We got a good price for it, a market multiple. And it is a business that will do better as part of a larger signaling business that Alstom has. In addition to that, we will enter into a collaboration agreement for both services and commercial activities that should make both GE and Alstom's transportation businesses more successful.
As for our presence in France and Europe, after Alstom's businesses joined the GE family, we expect to have over 100,000 employees in Europe. We have agreed to add 1,000 new jobs in France and have factored these this commitment into our financial plans. In addition, we have committed to keeping grid, hydro, offshore wind and steam turbine headquarters in France. In summary, the deal returns remain unchanged. There will be $3,500,000,000 less cash invested upfront and a $0.01 to $0.02 reduction in EPS accretion.
So now let's look at our plans for execution. We still see $300,000,000 in year 1 synergies growing to $1,200,000,000 in year 5. We expect to realize 80% of the $1,200,000,000 in synergies by the 3rd year. There are 4 main categories for synergies. The first is optimizing the manufacturing and services footprints.
The combined businesses have 16 major manufacturing sites and many more feeder sites and about 70 service sites across the globe. We estimate roughly $400,000,000 of our savings here over the period. 2nd, leveraging the combined sourcing buy to increase productivity, we have approximately $5,000,000,000 in common spend that we believe we can realize about 5% savings on. This is very consistent with our experience when we bought EGT from Alstom in 1999. The 3rd area is combining our R and D efforts across the product lines.
Then lastly, by consolidating supporting functions across SG and A, we see the ability to get about 10% synergy here across the combined businesses. We expect to spend approximately $900,000,000 over the 1st 5 years to realize the $1,200,000,000 of cost savings. Beyond the $1,200,000,000 we have assumed some modest revenue synergies, but see the potential for more upside. The teams have started to work to develop these additional growth opportunities. The current plan should drive $0.69 of EPS accretion in 2016 assuming a mid-twenty 15 close.
We have now kicked off our integration planning with Alstom, so we can hit the ground running when the approval process is complete. This will be a broad GE effort spanning many parts of the company. We have appointed Mark Hutchinson, our overall GE integration leader. Mark is a GE Officer with broad global experience and was most recently our CEO of China. We have formed a joint GE Alstom steering committee and had our first meeting last week in Paris.
From here, the process for closing will include works council consultations, Alstom shareholder approval and customary regulatory reviews driving an expected closing in mid-twenty 15. Overall, we are excited about the acquisition. We are confident in our ability to execute and we have a proven and experienced integration team now in place to ensure success. With that, I want to hand it over to Jeff Boinste.
Thanks, Steve. I'll start with the Q2 summary here. We had revenues of $36,200,000,000 up 3% from the Q2 of 2013. Industrial sales of $26,200,000,000 were up 7% and GE Capital revenues of $10,200,000,000 were down 6 percent. Operating earnings of $3,900,000,000 were up 7% and operating earnings per share of $0.39 were up 8%.
Continuing EPS of $0.35 includes the impact of non operating pension and net EPS includes the impact of discontinued operations. We had $41,000,000 charge in the quarter in disc ops, primarily $30,000,000 from WMC. WMC pending claims were down $700,000,000 in the quarter and litigation claims were $1,300,000,000 higher. Reserves of $550,000,000 are essentially flat versus the prior quarter with a slightly higher coverage of potential losses. As Jeff said, CFOA year to date was $3,400,000,000 We had industrial CFOA of $2,000,000,000 and received $1,400,000,000 of dividends from GE Capital.
Industrial CFOA was up 12% reported and down 41% excluding the impact of 2013 NBCU tax payments. This is driven by timing of orders and inventory build and we're still on track for the $14,000,000,000 to $17,000,000,000 CFOA range that we guided for the year. The GE tax rate for the quarter was 19%, up from 17% last year, bringing the year to date rate to 21%. As previously communicated, we expect the full year industrial rate to be about 20%. The GE Capital tax rate of a negative 13% was principally driven by the announced consumer Nordics disposition.
The tax benefits from this transaction are anticipated to be higher than what we had planned for. And with that, we now expect a low single digit tax rate for the full year. We recorded roughly $260,000,000 of tax benefits in the Q2 to bring the year to date rate in line with the expected lower full year rate. On the right side, you can see the segment results. Strong top line growth of the Industrial segment's revenues up 7% and operating profit growth of 9%.
GE Capital earnings were down 5% in the quarter on lower assets. Per our previous communication, the GE Capital results now include the impact of preferred stock dividends. For the quarter, that was approximately $160,000,000 versus $135,000,000 in 2Q of 20 13. I'll cover the dynamics of each of the segments on the following pages. First, I'll cover other items for the quarter.
We had $0.03 of restructuring and other charges at corporate, about $0.02 of that related to ongoing industrial restructuring and other items as we continue to invest in simplification to improve the industrial cost structure. The spend was broad based with projects in every business and corporate. We were executing on approximately 145 projects that average a year and a half payback. We also had a $0.01 one time charge related to the write off of an asset in our consolidated nuclear joint venture. We took 51% of the impact related to that write off and our partners took the remainder.
Offsetting the restructuring, we booked a gain related to the disposition of Wayne Fuel Dispensers business in oil and gas. We recorded a pre tax gain at corporate of $90,000,000 related to that transaction. The net impact of these two items was a $0.02 charge. So to give some context, the gain came in about $100,000,000 lower than expected. Our restructuring spend of $300,000,000 pre tax also came in about $100,000,000 lower than planned.
This was due to lower spend of about $70,000,000 needed to execute the existing projects and some delays attributable to works councils for roughly $35,000,000 In addition to the ongoing restructuring spend, we had the one time charge related to the nuclear asset write off. So restructuring and other charges net of gains of $0.02 ended up being a higher expense than we planned in the quarter. Now I'll take you through the segments starting with Power and Water. Orders of $6,300,000,000 were up 6%. Equipment orders were down 1% with distributed power down 32%, thermal down 9% and renewables up 16%.
The decrease in distributed power in distributed power is attributable to the timing of orders in the emerging markets that we expect to close in the second half. Thermal orders were lower on gas turbine orders, 10 versus 24 a year ago, partially offset by more BOP orders for balance of plant. First half gas turbine orders were 41 versus 32 a year ago. No change to our framework for 125 gas turbine orders for the year. In the Q2, we booked our 1st hgas turbine order for a cogen application in Russia and we expect to ship that unit in 2015.
Service orders were up 12% driven by PGS up 13% on strong demand for upgrades and parts. We expect a reasonably strong transactional outage season in the second half of the year. We booked 19 AGPs in the quarter versus 12 a year ago. Revenue in the quarter was higher by 10% to $6,300,000,000 Growth was driven by equipment up 20% and services up 2%. Equipment revenue was driven by thermal up 38% on 2 more gas turbines versus last year and higher BOP up 38%.
Wind equipment revenues were up 30% with 159 more wind turbines year over year. Thermal and wind growth was partly offset by lower distributed power growth, which shipped 41 units this year versus 55 a year ago. Our profit of $1,100,000,000 was up 4%, driven by volume and simplification benefits offset by negative mix, principally higher BOP and wind shipments. Product line mix was 2.4 points of a margin drag in the quarter. SG and A was down 7% in the quarter.
Our outlook for the business for the total year has not changed. At the moment, we are likely to be stronger on AGPs than we planned, but may see some distributed power volume push. Gas and wind turbines remain within the framework we've shared with you. Now for oil and gas, orders were up 5% in the quarter to $5,300,000,000 Equipment orders were down 9% versus a very strong Q2 in 2013 when equipment was up 42%. Turbomachinery was down 42% versus up 74% last year.
Subsea was down 44% versus up 30% a year ago. Downstream technology up 85% on strong petrochemical demand and drilling and service up 55% were strong in the quarter. Drilling received a launch order for our new 20,000 PSI drilling system, the first in the industry for Maersk and BP. The 20,000 PSI capability makes ultra deep offshore drilling possible in areas unavailable today. So we're quite excited about the progress there.
Service orders were strong up 23% with turbomachinery higher by 49% on increased upgrades installations and transactional services. Downstream technology was up 35% and M and C was up 1%. M and C was up 19% excluding the impact of the Wayne and Sensors dispositions. Revenues of $4,800,000,000 were up 20% driven by equipment strength up 29% with Subsea up 51% and Turbomachinery up 15%. Service revenues were higher by 11% versus the Q2 of last year.
Operating profit was up 25% on higher volume, positive value GAAP and strong productivity offset partially by negative mix from subsea growth. Margin rates in the quarter improved 50 basis points. On the next page, aviation. Demand for travel continues its strong growth year to date May. Revenue passenger kilometers globally were up 6.2 percent with strength across all regions.
Freight grew 4.4% May year to date. Orders in aviation were up 1% with equipment down 8%, driven as we expected by commercial engines down 27% on lower CFM orders and a non repeat of the FedEx CF6 order from last year. This was partially offset by stronger international military orders. Service orders were 13% higher with spare parts orders the spare parts orders rate up 16% to $28,400,000 a day. As Jeff mentioned at the Farnborough Air Show, we won 312 LEAP engines on the Boeing MAX.
We also won 520 LEAP engines on the Airbus A320neo versus 100 to the competition. For the A320neo program to date, we've won 54% of the engines. And in 2014 year to date, the LEAP has won 67% of the engines on the A320neo. Overall since the launch, the LEAP engine has won 77% of all narrow body competitions. Operationally in the quarter revenues were higher by 15%.
Equipment revenues were also up 15% driven by commercial engines up 14% and military engines up 3%. We shipped 75 Gen X engines versus 33 a year ago in the quarter. Services revenue was up 15% with strength in commercial services, partly offset by military services. Operating profit in the quarter was 12% driven by higher volume, positive value gap, offset by negative mix associated with the Gen X shipments and higher R and D spend in the quarter. Operating profit margins of 19.7 percent were down 40 basis points in the quarter.
Through the half, margins were up 20 basis points. Overall, Dave Joyce and the aviation team continues to execute and win and we expect the technology investments we've made and continue to make will sustain the momentum. Next, healthcare. Healthcare, the 2nd quarter was again soft in the U. S.
As we expected. Inpatient volumes were weak, which in conjunction with increased consumerism and the changes in the healthcare law appear to be causing hospitals and clinics continue to be cautious on new investments. Orders for the business of $4,800,000,000 were flat with emerging markets up 7%, led by Latin America up 12% and China up 12%, offset by the U. S. Down 2%.
Equipment orders were flat with HCS down 4%, offset partially by life sciences up 23% up 5% organically. Service orders were up 1%. Backlog of $16,600,000,000 was 6% higher than a year ago. Revenues were flat with developed markets down 2% and emerging markets up 7% with strength in China, Latin America and the Middle East. Operating profit was up 1% with strong cost productivity offset by negative value GAAP and FX.
SG and A ex acquisitions was down 8% in the 2nd quarter. Our profit margins improved 10 basis points, up 60 basis points organically. For the second half, we expect the market dynamics to be similar to the first half with weakness in the U. S. But continued growth in life sciences and the growth regions.
The business will continue to deliver on remaking their cost structure and we expect that healthcare will grow earnings single digits for the year. Next, talk about transportation. The transportation team continues to execute well in a pretty tough environment. Domestic activity continues to improve though. Carloads in the U.
S. Were up 4% for the first half driven by intermodal, petroleum and a very strong grain shipments and even coal saw 30 basis points of growth as post winter stockpiles are replenished. Higher volume in conjunction with the Q1 weather effect have impacted velocity on the lines. As a result, park Locos are at their lowest levels since 2,007, 2008. We are seeing increased orders activity in Locos.
At the beginning of the year, we communicated that we expected to ship about 600 units in 2014. We now expect that shipment number to be closer to 750 plus. Balancing that, mining volume for both units and parts are weak. We guided an expectation of being down almost 50% in 2014 versus 2013 and now expect mining to be slightly weaker than that. Orders for the quarter were up 35% with equipment growth of 40% and service growth of 32%.
Equipment strength was driven by North American locomotives including our first order for 39 Tier 4 Locos for delivery in 20 15. Service orders were driven by locomotive parts and $125,000,000 signaling win in Singapore. Backlog of $15,900,000,000 grew 13% from the Q2 of last year, driven by equipment up 51%. Revenues in the quarter were down 18%. Equipment was down driven by mining down 43% and lower loco and kit deliveries.
Service revenue was down on weak mining parts, partially offset by core services and loco parts. Op profit down 14% was driven by lower volume, partially offset by positive value gap and cost out. SG and A was down 14% in the quarter. Operating margins improved 110 basis points on strong cost management. Our total year expectations for transportation remain intact with better locomotive demand and deliveries offsetting slightly worse mining experience than the 50% down we expected.
We feel good about our momentum on locomotives are experiencing high utilization of our plants in 2014. Based on the first to market Tier 4 solution and improved rail volumes, we are optimistic that customers will continue to place orders in and for 2015. Now Energy Management, the business took a couple of steps forward in the quarter, but still remains very much a work in progress. Orders were down 14% in the quarter, partly driven by no repeat of the Big ComEd META order last year in digital energy. As a result, digital energy orders were down 32%, but up 26% excluding the ComEd order.
Industrial solution was down 8% on slow demand in North America and the exit as part of restructuring of 7 subscale international platforms. Power Convergence saw a number of marine orders pushed in the second half. Backlog continues to grow up 12% year over year. Revenue in the quarter was down 6%. Off profit more than doubled from last year to $69,000,000 and margin rates improved 110 basis points.
The team is doing a great job executing their restructuring strategies including reducing rooftops by 40%, simplifying their product structures and realigning their SG and A functions. Restructuring benefits are delivering productivity that more than offsets the negative volume. We expect Energy Management to continue its improvement trajectory. Appliances core industry was up 5% in the 2nd quarter with contract up 8% and retail up 4%. Housing starts rebounded up 9%, helping volumes in the quarter and single family starts grew 5%, multifamily starts grew 18% in the quarter.
Revenue in the quarter was flat with appliances flat and lighting down 1%. Appliance revenue was down 1 point on volume, but up 1 point on price. We ran a number of promotional events that drove improvement during the quarter with revenue down 5% in April, up 1% in May and up 5% in June. So the trajectory is correct. Lighting revenue was down 1% with strong LED growth of 50%, offset by 9% down on traditional products as retails continue to bleed off incandescent inventories.
Our profit of $102,000,000 was up 23% on positive value gap and productivity. SG and A in the quarter was down 4% and our profit rate improved 90 basis points in the quarter. Next is GE Capital. Revenue of $10,200,000,000 was down 6%, primarily from lower assets and lower gains. Assets were down 2% or $10,000,000,000 year over year.
GE Capital's net income of $1,700,000,000 which includes $161,000,000 of preferred dividend payment was down 5% on a comparable basis as impact from lower earning assets and gains more than offset lower losses, marks and impairments and higher tax benefits. ENI of $371,000,000,000 was down $19,000,000,000 or 5% from last year and down $2,000,000,000 sequentially. Non core E and I was down 15% to $51,000,000,000 versus last year. Net interest margins in the quarter at 5% were essentially flat. GE Capital's liquidity and capital levels continue to be strong.
We ended the quarter with $76,000,000,000 of cash and Tier 1 common ratio on a Basel 1 basis improved 28 basis points sequentially and 51 basis points year over year to 11.7%. On the right side of the page, asset quality trends continue to be stable. The only exception being the seasonality we expect in the U. K. Mortgage, but delinquencies in the U.
K. Mortgage portfolio are actually down 160 basis points year over year. Now to walk through each of the segments. In CLL, commercial lending and leasing business ended the quarter with $174,000,000,000 of assets flat to last year. On board core volume was $11,000,000,000 down 3% driven by the Americas which was down 4%.
But we do see pockets of strength in the U. S, largely in equipment financing with our transportation business up 25%, vendor equipment leasing up 7% and our fleet business up 6%. Volume in CLL International was up 3%. The team is staying disciplined on pricing and risk hurdles and the new business returns were about 1.8% roughly in line with the Q1. Earnings of $541,000,000 were down 34% driven by lower tax benefits from the non repeat of last year's Fleet Canada disposition and tax benefits we had in Europe, as well as lower assets.
These were partially offset by improvement in losses, marks and impairments. The Consumer segment ended the quarter with $135,000,000,000 of assets, flat to last year. Earnings of $472,000,000 were down 43%, driven by lower international assets, which were down 12% year over year including the impacts of the Swiss IPO and Bay Thailand sale. In the current quarter, we also recorded roughly $85,000,000 of after tax loss provisions as a result of recent legislation on consumer pricing in Hungary. North American retail finance earned $512,000,000 in the quarter, down 9% driven by continued investment in its standalone capabilities, partially offset by 9% growth in its earning assets.
Real estate assets at $37,000,000,000 were down 11% versus prior year and down $1,000,000,000 sequentially. The equity book is down 26 percent from a year ago to $13,000,000,000 Net income of $289,000,000 was down 34%, primarily from lower level of tax benefits and gains. In the current quarter, we sold 52 properties with a book value of about $420,000,000 for $137,000,000 in gains. That's down $65,000,000 from last year. The verticals GECAS earned $343,000,000 up 13% as lower impairments and higher gains offset the impact of lower assets, which were down 9%.
New volume was $1,500,000,000 up 17% with attractive returns of about 3% ROIs and we ended the quarter with 0 aircraft on the ground. Energy Finance had a good quarter with earnings up 27% to $76,000,000 driven by core income and lower level of marks and impairments. As I mentioned earlier, the tax rate of GE Capital was negative for the quarter and that was driven by the planned Nordex transaction with $260,000,000 of tax true up being brought to the GE Capital corporate. Excluding the tax true up, the GE Capital tax rate would have been in the low single digits for the quarter. As you look forward to the Q3, we expect GE Capital to be about be around about $1,600,000,000 in earnings.
Overall, Keith and the team continue to execute the portfolio strategy and deliver solid operating results. The Nordics dispositions, which we expect to complete in the Q3 and the IPO of retail finance, which I'll cover on the next page, are major steps in further reducing GE Capital's consumer footprint and focusing on the commercial core. So with that, we're announcing today that we're targeting the IPO of our North American retail finance business for the end of July. We'll be putting out a prospectus or a red herring later this morning. We're limited to what we can say during the IPO process, but we're pleased to be at the final stages of the IPO.
We're targeting a 15% offering for about $3,100,000,000 at the midpoint in the price range. There was a potential additional 2.25 percent for the Green Shoe. As we've said in the past, the capital raise will remain within Synchrony to enhance its standalone capital liquidity levels. There will be $1,500,000,000 of funded transitional financing from GE Capital. This is down from our previous estimate of about $3,000,000,000 The team has been doing a lot of work to strengthen their standalone capabilities on capital liquidity and governance.
You may have seen that S and P and Fitch published their investment grade ratings earlier this week for Synchrony. We are targeting the split off in late 2015 subject to regulatory reviews and approvals. Assuming a $3,000,000,000 IPO for 15%, we would retain an approximately $17,000,000,000 position in Synchrony. There are a lot of variables and the GE share count reduction will be dependent on the price of GE and Synchrony shares at the time of the split. We're still targeting $9,500,000,000 or less shares with this transaction.
The process is on track and we'll update you along the way. With that, I'll pass it back to Jeff.
On the for 2019. We have no change to the operating framework for 2014. We expect double digit industrial operating profit growth behind solid organic growth and margin expansion. GE Capital earnings are on track for $7,000,000,000 excluding the impact of the preferred dividend. We will hit our simplification goals, including a $500,000,000 reduction in corporate expense.
We plan for restructuring to exceed gains, which is a drag on 2014 will benefit 2015 and beyond. Our CFOA and revenue remain on track. In fact, I would say organic growth is probably closer to the high end of the range. We continue to move the company forward strategically. Our long term investments in technology are really paying off with solid share gains.
And with the retail finance IPO and Alstom acquisition, we're boldly reshaping the company. I'm proud of the GE team's ability to execute so well strategic and operationally on so many fronts, and we're well positioned for the future. So Matt, now back to you. And now let's take
some questions. Christine, let's open it up for questions. Thank
you. Our first question comes from Scott Davis of Barclays. Please go ahead.
Hi. Good morning, guys.
Hey, Scott.
Thorough presentation, so appreciate that. I guess, since we've got Steve there, I think just some logistical questions on Alstom. I mean, do they still I mean, how do you keep the place from falling apart, I guess, from now until you close it? I mean, do they still bid on projects and compete against you till you close? Do you have some any control or oversight of how operations how things are run between now and then?
Because it's going to be a little while till everything gets approved?
Scott, listen, we are 2 separate companies and we'll be through closing. As we said, we have an integration planning effort that we have now kicked off. But we have a process that we have to go through, works council approvals. They have a shareholder review. And we have all the various regulatory steps to go through.
So at this point, Scott, they're separate. In some areas we do compete. But as I mentioned earlier these companies are largely complementary complementary in terms of geography technology. And it's a company we obviously know. And as you know Scott back in 1999, we bought the packaging business that was EGT that came to us and some of our best leaders came from that.
But in the short term, we are separate and they're under their control.
Okay. Understood. And then a couple of of minutes here. I mean is there when you think about Synchrony is there and this is for Jeff and Jeff, but are there any structural or tax reasons why this business can't be sold in the process or post the IPO versus versus spun?
Yes. Scott, I mean, the reason we focus and we're heading down a path on the split is it's very tax efficient for shareholders. So there's real value creation in doing the split offer shares versus selling the business out
right. Okay. Fair enough. And then just lastly, there's a lot of chatter on M and A in the space. I mean, there's press reports out there on Siemens and Dresser.
Does Alstom really cut you guys out of being able to go after some of the stuff if it becomes optimistic and you have a white knight type scenario with Dresser? I mean, it's a fairly unique asset. Could you I don't think I'm asking you to comment just specifically on Dresser, but on an overall basis, does Alstom really keep you out of the market? Or do you feel like you could still go in there and if need be, issue equity or be creative about how to finance it?
Yes. Scott, what I would say is on in our oil and gas business, we feel like we've got a great coverage in terms of where we are right now. We really don't have any changes today on how we think about capital allocation and things like that. But look, we're always looking at the portfolio in terms of additional divestitures and things that we can do progressively inside the company. We're not done with that yet.
And that could open up new capital allocation options. But we're really not we really today our focus is on our near term focus is on the Alstom integration and doing a great job with that.
Okay. Good answer. Thanks guys and good luck. Thanks. Thanks.
Thank you. Our next question is from Julian Mitchell of Credit Suisse. Please go ahead.
Hi, thanks. Hey Julian. Hey. Just had a question on the Healthcare business. You talked back in December about how you might get close to 10% profit growth this year in Healthcare.
First half, I think profits are down. So just maybe a quick update on your thoughts there.
Yes, Julien. I think what we talked about was health care profit growth of high single digits, low double digits. I think given how we started the year particularly in the U. S. And particularly in HCS, our expectations as of now are that we're going to grow operating profit in Healthcare single digits this year.
I would say, Julian, the U. S. Market continues to be tough. Outside the U. S, I think the team's executing pretty well overall.
I would agree with Jeff's assessment on where Healthcare will come in on the year. And I think the good part about GE is we have other segments that will be higher than our original expectations. So that in total, we still feel good about the overall framework of double digit operating profit growth industrial operating profit growth.
And within healthcare, I mean, we still expect that we have expectations the growth markets will continue to grow for us, most of them double digits. Life Sciences will have a great year, but the U. S. Is going to be a real headwind.
Thanks. And then just on the kind of GE wide EBIT margin bridge. I think in the first half, you've had a value gap benefit to EBIT of about $200,000,000 I think in January, you talked about a $200,000,000 benefit for the year as a whole. So what should we expect for ValueGap in the second half as an EBIT driver?
Yes. So I think the guidance we gave is a couple of $100,000,000 for the year. We're in very good shape through the first half. We still expect value gap to contract a bit in the second half as it relates to prices we ship backlog particularly in Power and Water. But there's a chance we could be a little bit better for the year on value gap, but I wouldn't expect it to be markedly different than what we have shared with you previously.
And simplification I think simplification is still on track for $1,000,000,000 plus for the year.
Great. And then just lastly for Steve. On the grid business, Chinese competitors have made very big inroads there even on areas like HVDC in the last decade. How confident are you about the ability to bring up the grid margins given the competitive landscape is so different now?
I think what you saw from the results in the quarter is that team is making progress. And one of the thing that business also needs long term is scale. And that's one of the things we talked about with Alstom and our integration planning is one of the joint ventures we have is right in that space. We'll be putting our digital energy business with the Alstom grid business to have more scale globally and be able to compete with people like ABB and Siemens. So I think we're on the right track.
Julian, if you look in the industry, ABB is 15 plus. Siemens is double digits. Our combined business will be 5 to 6. If we can get from 5 to 6 to 10, we're going to create a bunch of shareholder value here in terms of where we need to go. And I think that's our game plan in terms of how do you be a more competitive enterprise on a combined basis.
Great. Thank you.
Thanks.
Thank you. Our next question is from Nigel Coe of Morgan Stanley. Please go ahead.
Thanks. Good morning.
Hey, Nigel.
Just a a quick question on Synchrony. Obviously, you pushed the button today on the roadshow. But once that IPO is what happens to the accounting for the retail finance business? Does that move as an investment? Or does it qualify for discontinuation?
No, no, no. We'll continue to account for it and continue our operations and we'll account for the public ownership roughly 15% as minority interest.
Okay. No, that's very clear.
And then just switching to the H. You've got 9 units in your order book. And I'm just wondering, Jeff, you mentioned that EPG that's I think roughly 35 under proposal. I'm just wondering how that number's changed?
The H just to follow-up on your question there Nigel, as we said we have 9 now in the process and our first one shipped next year. And the demand is around the world and you see demand also in this high efficiency segment continuing to move forward and a lot of focus on areas. There are multiple people in the space, but we are happy with our progress. And as you heard from Jeff Bornstein, if you look at our gas turbine orders through the first half, we're 41 versus 32 last year. We're making headway towards the framework that we put out earlier this of about $125,000,000 for the year.
How many in the bid cycle?
In the bid cycle, H probably north of $45,000,000 $50,000,000 So there's a lot of activity around the world.
Thank you. Our next question is from Jeff Sprague of Vertical Research. Please go ahead.
Thank you. Good morning.
Hey, Jeff.
Hey. Just a couple kind of deal related questions. First, just Steve or perhaps Jeff Hornstein, but the JV structure and the put structure as it relates to that at Alstom, can you give us a little more color on how that works and how this floor mechanism works?
Absolutely, Jeff. The mechanics 2 different structures, but it's clear on how Alstom gets liquidity. And in each case, Alstom would have the right to sell all of its shares in the JVs to GE at a price that would return Alstom's investment plus an annual accretion in line approximately with our borrowing costs. Additionally, there is an opportunity for Alstom to share in some potential upside based on a predetermined EBITDA multiple. The timing of those puts are slightly different grid and renewables more in the 3 or 4 year time frame for the nuclear and French steam JV more in the end of year 5, 6, 7 time frame.
But it's clear. We know how it works and pretty straightforward.
But if those things go south hard, you still end up making them whole at their investment plus some accretion?
That's correct in terms of their whole and some slight return as we talked about. But at this point, we maintain operational control. We named the CEO and we know how to get after the synergies.
And then I was also just wondering shifting gears on Synchrony. I was a little surprised to hear late 2015 is kind of the split off target given that looks like you're getting this done mid-twenty 14. I would have thought maybe 6, 9 months of seasoning would have been enough and this would be kind of an early 2015 split. Can you share any thought or philosophy on that?
Yes. So we're on the timeline we talked about for the IPO. We're talking the second half of twenty fifteen now. I think just based on the amount of work to get the standalone ready and to get to where we need to be with regulators and get through the approval process, we think that's probably closer to the second half of twenty fifteen. Yes, Jeff.
We're not
going to keep it a day longer than when we get approval to do the split. So it's just really letting it season is all we're trying to just allow for a little time frame for that.
Thank you. Our next question is from John Inch of Deutsche Bank. Please go
ahead. Thank you. Good morning, everyone.
Hey, John.
Good morning. So Alstom back to Alstom. When do we get a full handle on the EPC liability risks, bad project debts and the like? And as the corollary, you have to wait until the deal closes to communicate that if there's something that could be material that you might have to true up or top up with GE funding?
Why don't I jump in
on that one John? Listen there's nothing new to report here today. You're talking I think about the turnkey projects that they have. Listen we did public company due diligence. So there's a certain amount of detail that we got exposure to.
And with that, we've accounted for that in our financial model. But there's always going to be things we find as we go through the process. But I'd say at this point, this is a business we know well. We factored that in and we have some synergies to offset as we go forward. So at this point, we just got to we think we got it covered.
John, I would just add that and say, really a business and an industry that we've been in for 100 years, we've done it once with Alstom. So we knew a little bit from 1999. Deals like this come around infrequently, particularly at this kind of valuation. So 4.5 times EBITDA after synergies and a synergy pipeline that adds up to more than $1,200,000,000 So there's always a lot of discussion around deals like this, but the overall economics are extremely compelling for investors and right in our sweet spot visavis the ability to execute.
Thank you. Next question is from Steve Tusa of JPMorgan. Please go ahead.
Hey, good morning.
Hey, Steve. So just at a high level first and I have a follow-up on power and water and mix. What offsets the healthcare vision in the framework?
Well, we generally expect the businesses within the framework that Jeff shared with you in December to be within that framework.
I'd say, Steve, Aviation is certainly doing better and Oil and Gas is off to a good start for the year. And We expect Energy Management to deliver We expect Energy Management to deliver
Across the portfolio, across the portfolio, we think we're still within the framework we shared with you.
Okay. And then just on Power and Water, and I guess this kind of goes to the mix question. When you look out to the second half, I think you have the thermal deliveries are going to be up. It looks like distributed power, it faces pretty much tougher comps and the orders aren't holding up there. So maybe that's a little bit lower.
How much better are advanced gas paths going to be in the second half? And is that enough to offset what would seem like ongoing negative mix when you look at thermal being up and distributed power being down?
Steve, as we look at Advanced Gas Pass, we've got 19 shipped in the quarter, 36 year to date versus 14 last year. So we're clearly on a better path this year on Advanced Gas Pass. My guess is we look at the second half of the year, we're going to see the second half kind of more level loaded with the first half. So therefore, it might be 70 ish maybe a little more. So that's why when Jeff Borenstein talked about Advanced Gas Pass, we feel a little better.
But we do have some probably some softness in the distributed power area. So that's how we kind of how we look at that.
Thank you. Our next question is from Joe Ritchie of Goldman Sachs. Please go ahead.
Hi, good morning everyone.
Hey Joe.
So to date, I think you've announced dispositions of roughly a little bit over $1,000,000,000 You think you've got a targeted number of $4,000,000,000 I was just wondering if you could give us any update on the
your industrial portfolio?
Well, Joe, again, I think we would never like to talk about dispositions until we actually see them. But I would say we are on track for the 4,000,000,000 dollars and we would expect additional announcements as you look at how the year unfolds, but those things happen as they happen. And on the buy side, look, we always have a list of stuff that we do. I think the question that Scott asked earlier was really more along the lines of turbomachinery and packaging and things like that. We feel like in oil and gas, we feel like we've got a great portfolio in that particular segment of oil and gas.
And I would just circle back to the big priority of the team really is the Alstom integration and that's where the main focus is right now.
Thank you. Our next question is from Deane Dray of Citi Research. Please go ahead.
Thank you. Good morning, everyone.
Hey, Deane.
Hey, Jeff, in your opening remarks, you touched on there were some push outs and you said wind, oil and gas and subsea. And I was hoping you could quantify a bit as to what the size of those were maybe by geographies any reasons? And is this project timing or customer confidence?
Yeah, Dean, I'll give you a few pieces of it. So within Power and Water on wind, we had 400 or 500 wind units that moved out of the quarter really just awaiting clarification from the Treasury Department on what constitutes start of construction to be eligible for PTC. And these are projects that involve bank financing and tax equity investors. So very tough to move those projects along until they're absolutely certain that they're going to qualify for the PTC. We expect that clarification to come from the treasury in the next week or 2.
So and we've seen that clarification and we think it's helpful. So that's one example. That's over $1,000,000,000 of orders. And then in Subsea, we have a couple of big projects that
of course that we're hopeful
that we'll see here certainly in the second half as soon as possible would be great. That's well over $1,000,000,000 as well.
Dean, on these, there's I think 3 big subsea deals. 2 of them have been awarded to us. So it's just a function of getting the final project approval and stuff like that.
We're waiting for financial close.
We're just waiting for financial close to book the order.
Thank you. Our next question is from Andrew Obin of Bank of America. Please go ahead.
Hi, yes. Good morning. Hey, Andrew. Good morning. Yes.
Just with Alstom and with Synchrony and also you guys are going to do divestitures. What is the risk that some of the restructuring actions get pushed back with active portfolio reshaping going on just thinking about management bandwidth this year?
0. Andrew, I just think 0. Our intent is to get to the $75,000,000 by $16,000,000 and still do the simplification that we've got going right now. And the teams are executing along those along that track.
I would just add Andrew, as long as we've got a project list that looks like year and a half paybacks, those returns on investment are incredible and we will do every one of them.
Thank you. Our final question is from Steven Whittaker of Sanford Bernstein. Please go ahead. Thanks. Hey, Steve.
Hey, good morning. Thanks for fitting me in. Appreciate the transparency and speed that puts you moving through this. A couple of questions here. The first one just clarification on GE Capital.
The $3,000,000,000 of dividend, how much special is in there?
We're estimating a $2,000,000,000 income dividend and about $1,000,000,000 special.
Okay. And is there any room for movement around that special in your view, up or down?
Not likely.
Okay. All right. And then Steve, since I've got you on Power Gen, what we look at the thermal rate, which is always lumpy and down again this quarter, but what headwinds are you starting to see or anticipating in the future on the distributed generation and rooftop solar front versus the impact on power gen? And you've got energy efficiency. You've got solar finally making inroads.
You guys are you guys thinking about that as a headwind at all to growth in the core area?
I think it's a great question. I'd say you are seeing the impact of less load growth electricity load growth because of the distributed generation technologies solar energy storage etcetera. But what I would say is in aggregate though there's still electricity load growth. And again a lot of those technologies still are less than 1% or 2% of the total load on the system. And still 70% of all new power generation, new equipment purchases in the world are in developing regions.
So this is something we got to look at on a global scale. So overall, I'd say is we play in pieces of that. And I think you'll see us over time build out the portfolio in spaces. But the DP
business is Algeria, Brazil, Thailand. Those aren't solar places. That's where the DP business really goes. Right.
So I'd say overall it's an opportunity for us and we go from there.
Okay. Great. We're bumping up against 9:30. The replay of today's webcast will be available this afternoon on our website. We will also be distributing our quarterly supplemental data for GE Capital later today.
A couple of announcements regarding upcoming investor events. First, on Wednesday, September 10, we will hold our Oil and Gas Investor Meeting in New York City. On Thursday, October 9, we will hold our Services and Industrial Internet Investor Meeting in conjunction with the Mines and Machines 2014 Conference in New York City. We hope to see you at these events. Finally, our Q3 2014 earnings webcast will be on Friday, October 17.
And as always, we'll be available today to take your questions. Thank you.
Thank you. This concludes your conference call. Thank you for your participation today. You may now disconnect.