Good day, ladies and gentlemen, and welcome to the General Electric Second Quarter 2012 Earnings Conference Call. At this time, all participants are in a listen only mode. My name is Chanel, and I will be your conference coordinator today. If at any time during the call, you require assistance, please press star followed by 0 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, As a reminder, this conference is being recorded.
I would now like to turn the program over to your host for today's conference, Trevor Schonberg, Vice President of Investor Communications. Please proceed.
Thank you, Chanel. Good morning and welcome everyone. We're pleased to host today's Q2 2012 earnings webcast. Regarding the materials for this webcast, we issued the press release earlier this morning and the presentation slides are available via the webcast. Slides are also available for download and printing on our website at www.g.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 sit in today. Those elements can change as the world changes. Please interpret them in that light. For today's webcast, we have our Chairman and CEO, Jeff Immelt and our Vice Chairman and CFO, Keith Scharen. Now I'd like to turn it over to our Chairman and CEO, Jeff Immelt.
Thanks, Trevor, Good morning, everyone. The GE team had another good quarter. Let me start by giving you a few of the main points. First, we're confident in our earnings outlook for 2012. We remain on track for double digit industrial and financial earnings growth for the year.
And we restarted the GE Capital dividend, returning $3,000,000,000 to the parent in the Q2. The environment continues to be challenging. The U. S. Is stable.
The appliance market grew by 1%, but housing starts up more than 30% that bodes well for the future. Rail Holdings were up 1 0.2% and our retail volume in our private label credit card business was up 9%. We saw solid growth in the emerging markets with revenue up 17% and Europe remains very tough but within our expectations. Our revenue was strong with organic growth of 10%. Orders were up 1% and up 3% ex win and through the first half orders were up 8%.
Orders pricing was up 1.2% and foreign exchange impacted revenue by $900,000,000 in the quarter. Earnings grew by 12% better than planned. Capital energy, oil and gas transportation appliances were strong. This cost continues to be a headwind. And we have a very strong cash and liquidity position.
We bought back $900,000,000 of stock in the Q2 and plan to do an additional $3,500,000,000 to $4,500,000,000 by year end. Margins are improving and we're on track for margin growth starting in the Q3 and for 20122013. So overall, the team continues to make progress. Orders were up 8% year to date and consistent with our plans for the year. For the quarter, orders were about flat.
It's important to explain the impact of 2 unusual items, foreign exchange and strong wind orders in 2011. Discounting the impact of these factors, orders were up about 3% in the Q2 and energy equipment orders were up about 9%. Orders pricing was a highlight with 4 or 5 businesses growing and we continue to build backlog. Europe remains weak, particularly in service. Our orders position today supports our growth plans for the future.
Our investment growth continues to pay off. Growth market revenue expanded by 17% with 7 of 9 regions experiencing double digit gain. For instance, China was up 24% and Latin America was up 50%. Services grew by 2% and backlog grew by $4,000,000,000 and our NPI continues to work. We won big in Farnborough with $17,000,000,000 of new aviation commitments.
Our Mission 1 refrigerator sold out and we have 2 more appliance products launching in Q3. We're expanding our battery plant. Our platform in Russia is resulting in new gas turbine orders and high market share. We have a very strong product line in healthcare. Orders growth in the Q2 for MR was up 10% and CP was up 12% and we're adding value in our acquisition.
Through these volatile markets, we're winning commercially. We made progress on our margin commitments. We expect margins to grow starting in the Q3 and to be up 30 basis points to 50 basis points in 2012 and 100 basis points over 12 and 13. At EPG, I described our approach to margins and the 2nd quarter value gap was a positive $100,000,000 Service margins grew by 10 basis points. And our acquisitions were ahead of plan, although still a drag overall.
I also said that we would reduce structural costs by $2,000,000,000 between $12,000,000 $14,000,000 by simplifying GE. And you saw some of that today with the elimination of the top energy structure. Here are some benefits of that move for investors. All the acquisitions, our energy business has become very big and complex. Power and water will remain GE's largest industrial business.
Here we're benefiting from a positive gas turbine cycle. Oil and Gas is about $15,000,000,000 in revenue and we're positioned for rapid growth. And Energy Management at $7,000,000,000 has several solid growth platforms. These moves will allow us to become faster and more focused to win in each market. At the same time, you'll get transparency around 3 large and important segments that all have different opportunity for growth and are led by strong management teams.
And we expect to eliminate $200,000,000 to $300,000,000 of cost. Actions like this are always done carefully at GE. John and I have been working on this for some time and both feel it's right for the company. As you can see by our 2nd quarter results, our energy business is doing very well. We expect the second half in energy to be very strong and we're well positioned for 2013 and beyond.
John and I will work on a smooth transition in the Q3 with 3 leaders reporting directly to me in the Q4. John leaves the energy business in great shape. And cash is a great story with capital dividend were at $6,800,000,000 in the first half of 55%. This is ahead of our expectations. Working capital was impacted as we prepare for high shipments in the second half.
We ended the quarter with $74,000,000,000 of consolidated cash and there's another piece of good news. Due to changes in pension funding requirements, our pension cash needs will be reduced by $2,500,000,000 in $12,000,000 and $13,000,000 Now let me turn it over to Keith. Jeff, thanks. I'm going to start with the 2nd quarter summary. As you can see, we had continuing operations revenues of $36,500,000,000 that's reported up 2%, but we were impacted by the stronger dollar ex FX revenues were up five percent.
Industrial sales at $25,100,000,000 are up 9%. GE Capital revenues of $11,500,000,000 were down 8%, consistent with our planned shrinkage. Operating earnings of $4,000,000,000 were up 7%. Operating earnings per share of $0.38 were up 12%. Continuing earnings per share includes the impact of the non operating pension and net earnings per share includes the impact of discontinued operations reflecting the $0.05 of charges this quarter, which I'll cover on the next page.
As Jeff covered, year to date cash of $6,800,000,000 was up 55 percent, including the $3,000,000,000 of cash from GE Capital. For taxes, the GE rate 20% is consistent with the low 20s rate we forecast at the end of the Q1 and year to date rate for GE is 22%. The 5% GE Capital rate that's lower than the approximately 10% rate we previously forecast. The lower rates largely due to the business property disposition tax benefit that I'm going to cover on the next page. With the impact on the year from the business property disposition, the tax benefits we get with that, that's going to allow us to shrink real estate a lot more quickly.
We now expect a mid single digit GE Capital rate for the year. On the right side, you can see the segment results. Industrial revenues were up 9%. Industrial segment profit was up 7%. That's driven by the double digit growth in energy, oil and gas, transportation and GE Capital earnings were up 31%.
So I'm going to cover each of the segments in more detail in a page or 2, but let's start with the other items in the quarter. As you know, GE Real Estate announced the sale of its business properties business. We had $0.02 of tax benefit in the 2nd quarter from the high tax basis we have in the shares of the entity that we're selling. This transaction is expected to close hopefully by the Q4 and will result in $5,000,000,000 of lower real estate ending that investment. The BP tax benefit here is recorded in the GE Capital headquarters results in the Q2.
So you won't see that in real estate, you'll see that in corporate and capital. We also had a $0.02 after tax restructuring and other charges in the quarter. The charge is primarily related to continued cost structure improvements at GE Capital, Energy, Healthcare, Corporate and we also had one time costs related to the acquisitions. And on the bottom of the page, we had a $0.05 charge related to our WNC and gray zone reserves this quarter. I'll start with gray Zone.
Now we did see daily claims reductions in the range of what we're expecting in our models in December January. But since then, we've seen an uptick in the claims number over the last few months and the increases are above what we've modeled. The claim severity, the amount per claim is running within our modeled expectations, but because of the higher claims, we booked $310,000,000 of additional reserves and that reflects a slower overall claims reduction rate than we've previously modeled and we ended the quarter with $695,000,000 reserve. For WMC, at the end of the second quarter, there were $2,700,000,000 of pending claims, up from $562,000,000 last quarter. You saw that in the Q1 10 Q that the claims were increasing.
This acceleration in the quarter, we think is driven by statute of limitations considerations, but we saw an uptick above what we expected. And the reserve that we booked is based on our historical WMC experience, plus it includes an estimate for future claims. The WMC ended the quarter with $491,000,000 of reserves, up from $140,000,000 in the Q1. And we're going to continue to monitor both these items, but we believe the exposure is manageable. So let me go on to the businesses.
The first business is Energy Infrastructure, and I'll begin with the Energy segment. Energy had a strong quarter in Q2. Orders of $7,800,000,000 were down 6% driven by the non repeat of last year's wind orders. Equipment orders of 4 point $4,000,000,000 were down 5%, thermal orders of $1,400,000,000 were up 10%. We had orders for 30 gas turbines in Q2 versus 41 last year.
However, we also had orders for 5 steam turbines this year versus 1 last year and we had higher thermal order pricing. Wind orders of $900,000,000 were down 37%. Equipment orders ex wind were up 9% and we had orders for 4 28 units versus 668 last year. Total equipment order pricing for the energy business is up 2.7% and thermal is up 5% and renewable pricing is also up 5%, so a nice turn there. Equipment orders even including wind are up 9% year to date.
So a little bit of this is wind and a little bit is just the timing of orders and at the half we feel pretty good about where we are. Service orders of $3,400,000,000 were down 8%. That's driven by lower upgrades and outage services. We did see customers continue to run their gas turbine equipment as a result of the low natural gas prices in the quarter. Aero services were down as a result of tough comparisons.
Last year, we booked 10 rental units for Japan and revenues of $8,600,000 were up 19%, driven by all the strong volume. Renewable revenues led the way, dollars 1,800,000,000 it was up 160%. We shipped 7 26 wind turbines versus 2 69 last year and thermal revenue of $1,600,000,000 was down 20%. We shipped 31 gas turbines versus 32 last year with some mix differences. Both gas engines and air derivatives had strong volume growth and service revenue of $3,700,000,000 was up 4%.
Segment profit of 1 profit of $1,300,000,000 was up 15% and that's driven by the strong volume that we saw in the product lines. On the second business in Energy, Oil and Gas, they also had another strong quarter. Orders of 4.1 $1,000,000,000 were up 1%. They were up 6% ex the impact of the strong dollar. Equipment orders of $2,000,000,000 were down 8% driven by tough comparisons to last year.
However, again, if you look at year to date equipment orders for oil and gas, they're up 21% and service orders at $2,100,000,000 were up 11%. The orders price index for the business was up 1.8%. Geographically, we continue to see strong growth in Asia Pacific, up 60%, America was up 27%, the Middle East was up 19%. That was partially offset by Western Europe, which was down 17% and Australia was where we had the large one time orders last year. So that gives us some tough comparison.
Revenue of $3,700,000,000 was up 5%. Equipment revenue of $1,700,000,000 was flat and it's up 6% ex FX and service revenues of $2,000,000,000 were up 10%. Segment profit, dollars 535,000,000 was up 11% as the strong volume and positive price more than offset the negative impact of foreign exchange on the business. So overall, a really nice strong quarter in energy and we have a very good outlook as we look to the second half. Next is aviation.
Orders of $5,600,000,000 were up 5%. Commercial engine orders of $1,300,000,000 were down 19%. CFM56 orders were up 12% and orders for GE90 and CF34 were down in the quarter. Military equipment orders of $1,200,000,000 were up 200%, driven by F-one hundred and ten foreign military orders and the equipment order book to bill in the business was 1.22. Service orders of $2,600,000,000 were down 3% driven by commercial services.
Our Q2 average daily order rate was $20,600,000 per day, which was down 14%, partially offset by our long term service agreement orders, which were up 5%. The total orders price index was positive at 2.2%. Now if you look from a market perspective in aviation, the year to date passenger traffic is up 6.5% through May. Cycles flown have been about flat over the last 12 months. However, we continue to see the impact of customers working capital actions.
For example, spares orders were down 34%. And right now, our expectation for the second half, this is going to recover somewhat. We don't expect it to get back to last year's levels, but we do expect it to improve over what we saw in the second quarter. Revenue of $4,900,000,000 was up 3%, driven by strong equipment volume, partially offset by the lower spare sales. We shipped 5.66 commercial engines in the quarter versus 4 73 last year, and we shipped 27 Gen X engines, up from 4 last year.
Segment profit of $922,000,000 was down 4% as the benefits of positive price and lower base costs were more than offset by the lower spares. On the right side transportation, they delivered another great quarter. Orders of $1,400,000,000 were up 2% and for the first half, orders were up 29%. Equipment orders of $808,000,000 were down 3%, the lower mining orders more than offset higher locomotive orders. Service orders of $590,000,000 were up 10 percent and the orders pricing was up 1.1%.
Revenue of $1,600,000,000 was up 27% driven by the strong volume. We shipped 2 43 locomotives versus 163 last year. We also shipped 195 locomotive kits versus 94 last year and mining equipment was up over 30%. For the first half, we shipped 402 locomotives and our estimate for the total year is around 6.50 units. Segment profit of $282,000,000 was up 58% driven by the strong volume, positive pricing and positive service results.
Next is Healthcare. Orders of $4,700,000,000 were up 1%. This business was also impacted by a strong dollar up 4% ex FX. Equipment orders of $2,700,000,000 were up 4%, driven by strong growth in emerging markets, partially offset by Europe. If you just go around the regions on equipment orders, the U.
S. Was flat, China was up 26%, Latin America was up 9%, Middle East was up 13%, India was down 8%, but up 9%, ex FX. Europe was the soft point down 13% driven by Southern Europe. And just a few numbers by modality, globally, CT was up 12%, MR was up 10%, Life Sciences were up 6% and the Pet Business was down 14%. Service orders of $2,000,000,000 were down 2%, also driven by Europe down 10% and revenues of $4,500,000,000 were flat or up 3% FX adjusted.
Emerging markets were up 11%, offsetting the developed markets which were down 2%. Segment profit of $694,000,000 was down 2% as the benefits of the volume and productivity were more than offset by negative price and we had execution challenges of about $30,000,000 in Latin America. Excluding those, we would have had healthcare up about 2% in the quarter. Home and Business Solutions had another tough quarter, but we did see some positive signs in appliances. Revenues of $2,200,000,000 were up 2% as appliances revenues were up 10%, partially offset by lighting revenue, which was down 8%.
If you look at appliances, retail sales were up 11 percent, contract sales were up 22%. As Jeff said, we saw a strong pickup in housing starts. Appliances saw 5 points of price increase in the quarter and at the same time we increased share again, reflecting the benefit of the investments we've been making in new products over the last 18 months. As you know, we introduced a new bottom freezer refrigerator this quarter. It was sold out.
We're doubling the production rate. And the offset is in lighting. We saw volume pressure in the U. S. And Europe driven by lower incandescent sales.
Segment profit of $91,000,000 was driven appliances and the benefits of higher pricing were more than offset by inflation and lower lighting volume. Next is GE Capital. Mike Neal and the team delivered another very positive quarter. Revenue of $11,500,000,000 was down 8% in line with the assets, which were down 7%. Net income of $2,100,000,000 was up 31%, that's driven by lower impairments principally in real estate, plus we had some one time tax benefits that I covered on the other items page and that was partially offset by some of the dispositions we've been making as we shrink GE Capital.
I'll cover all those items by business in a minute. We ended the quarter with $433,000,000,000 of ending investment already below our original $440,000,000,000 target for the year and we're on our way to about $425,000,000,000 for the end of the year. Our net interest margin was 4.9 percent, up 47 basis points and there are more details on GE Capital and margins and capital levels in the supplemental deck that we posted this morning. On the right side, you can see the asset quality metrics continue to be good as delinquencies fell in CLL, real estate and the U. S.
Retail. They were up slightly in mortgage and that's a seasonal effect that we see. A big highlight is the continued improvement in commercial real estate. We also saw strong volume at good margins. We continue to shrink our non core assets.
And even after paying the $3,000,000,000 dividend, our Tier 1 common ended the quarter at 10.1%, up a full point over last year. So if you look at some of the business results, the commercial lending and leasing business, if you look, assets were down 7% year over year driven by non core runoff. Commercial volume in the Americas was $7,700,000,000 up 2% and returns on new volume remained at 2% return on investment. Earnings of $626,000,000 were down 11%. That was mostly impacted by $60,000,000 of year over year pressure in Italy from credit costs.
Even with that, our European business earned over $50,000,000 in the quarter and the Americas earned $527,000,000 which was down 3%. Our consumer results were better than the reported variance shows. Assets were down 7%, that's somewhat driven by foreign exchange and non core runoff and that's partially offset by $5,000,000,000 of growth in the U. S. Retail business.
Earnings of $907,000,000 were down 13%, again driven by last year's exit of Colpatria and other non core assets. The U. S. Retail business had a great quarter. They earned $641,000,000 up 9% on higher assets and higher margins.
Europe core business earned $154,000,000 up 13% on lower credit costs and UK Home Lending had another good quarter earning $45,000,000 in the quarter and the portfolio quality remained stable. Estate was the driver of the earnings growth in the quarter. Net income of $221,000,000 that's up $555,000,000 over last year. It's up $160,000,000 from Q1. The earnings were driven by lower marks and impairments, one time tax benefits and lower credit costs.
In the quarter, we had $5,000,000 of after tax credit costs, dollars 19,000,000 of after tax marks and impairments, it's the lowest level we've had in years. We sold 55 properties for $700,000,000 resulting in 53,000,000 dollars of gains. And so the improvements that we've seen in liquidity and valuations continued in the Q2 and as of now we expect the real estate business to remain profitable as we look into Q3 and Q4. EKS had another good quarter. Assets were up 2%, driven by strong volume and over 3% ROIs.
Earnings of $308,000,000 were down 4% driven by 2 small credit losses and the portfolio quality here continues to be strong. We have 50 $6,000,000 of non earnings in the whole portfolio and only 3 aircraft on the ground out of over 1500 aircraft. Energy Financial Services earnings $122,000,000 were down 12%. We had $850,000,000 of volume in the quarter at approximately 5% return. So another great quarter for GE Capital.
If you look at the Q2 earnings of $2,100,000,000 from a run rate perspective going forward, I take a few items into consideration. First, the BP tax benefits that I covered don't repeat at the Q2 amount as you go into the second half. 2nd, the Q3 includes our annual GECAS impairment review, which you're all familiar with. Last year, the impact of that was $107,000,000 after tax. I don't know what it will be this year.
I just give you last year's numbers for context. And third, we're expecting that retail reserves will be higher as they usually are in the Q3, seasonally. Last year, retail credit costs increased $188,000,000 after tax from Q2 to Q3. So with that, let me turn it back to Jeff. Thanks, Keith.
And now to the operating framework, we want to confirm our operating framework for the year. We expect industrial earnings to grow double digits. Energy is going to have a very strong second half and margins will be positive in the Q3 and for the year. Capital earnings will grow double digits. Commercial real estate has improved dramatically and Europe is manageable.
Corporate is on track and will offset any gains with restructuring. Cash expectations are being revised upward because of the capital dividend and pension change. We now expect $17,000,000,000 to $19,000,000,000 of CFOA for the year. Organic industrial revenue growth should continue to expand 5% to 10% and we will continue to shrink GE Capital. So we have a very solid outlook for 2012 and good momentum as we turn the corner for 2013.
Finally, I think there's a lot of positive news in this report for investors. We have a solid industrial outlook. We have a big backlog and margin performance is on track for the expansion we communicated at EPG. We're getting cash from GE Capital and we will continue to position it to be a smaller, more valuable franchise. We have a lot of cash.
We plan to use the $4,500,000,000 capital special dividend to buy back additional stock and those efforts will accelerate in the Q3. Meanwhile, we'll continue to grow the GE dividend in line with earnings. So in a volatile environment, GE is positioned for double digit earnings growth and valuable capital allocation. And this is a powerful combination for investors. So Trevor, let me turn it back over to you and let's take some questions.
Great, Jeff. Chanel, we're ready to go to the questions right now.
Thank you. Our first question comes from Steve Tusa with JPMorgan.
Hey, good morning.
Hey, Steve. Good morning, Steve.
So just on the aviation front, Europe down pretty dramatically, but the margin was still okay in spite of that. You said it's going to improve a little bit in the back half. How do we think about aviation margin as we kind of turn the quarter into the back half and in third quarter?
Well, I think if you look at the quarter, we were 19% margins down from 20% last year. Really the good news in Aviation, the good news, bad news margins is we're getting tremendous equipment growth and then we have a negative on equipment service mix, Steve. I would expect that you're going to continue to see that. We have a tremendous backlog on the commercial equipment. But you've seen a couple other points in Aviation.
The R and D as a percent of revenue was leveled off. They're controlling their costs. And the improvements that they've made on everything they're doing with the launch of the Gen X continue to help us as we look at the pressure that the Gen X engines deliver. So for me, I think if you look, the orders for aviation were down, spare orders were down in the quarter, right? We went down from in the quarter, just let me get the ADOR.
Last year, Q1 was 23 a day, Q2 was 20.6. Last year was 27 in the 3rd quarter, Steve. We do not anticipate that we're going to get back to that level. But I do anticipate that and the business is forecasting that will be up in the mid single digits over the 2nd quarter levels that we saw. So I think aviation is one that we're confident about the outlook for the year being positive in terms of our profit.
In the Q3, there's one item. Last year, we had a gain, if you remember, it's about $70,000,000 that won't repeat. So that in the Q3, I'm not anticipating a really big margin number for these guys, but we do anticipate an improvement in spares over the Q2 and we do anticipate them to be positive on op profit for the year.
Got you. And then just one last question on the energy business. Thermal pricing up 5%, orders were down, obviously a pretty tough comp. How booked are you guys from a thermal perspective, how booked are you guys for next year? My guess is your visibility is obviously getting better as you get closer there.
Do we expect more orders here in the second half of the year given that I think your book to bill is still below 1 in thermal, but the pricing is obviously picking up very nicely showing the market's tightening, which is a positive. But I guess how can you give us
a sense as to how booked you are if we
were to assume a flat growth year in turbines, how booked are you for now?
Sure. I don't have the exact turbine number, but I would say you right now, our business is about flat with what we normally would see in terms of booked orders and we're about normal on commitments that are things that the team is working as you look to a flat year in gas turbines for next year. We're going to have that big infrastructure meeting in September and we'll give you a nice update there, I would say.
I mean, that should grow, right, next year, I would think?
I think we'll be up a little bit, Steve. But it's still early. I'd say the commitments are still early in the process, but I still think the overall market is firming.
Great. Thanks.
Yes. Our next question comes from Scott Davis with Barclays.
Hi, good morning. Hey, Scott.
Good morning, Scott. Guys, can you give us a little bit
of color on the timing and why John Krennicki is leaving with the reorg?
Yes. Scott, John and I have been working on this for, I don't know, 6 or 9 months. I think with all the acquisitions and everything, we had a kind of a $50,000,000,000 company within a company. And I think from our standpoint, really as an operating company, I think the idea to get a little bit faster and more focused on those three
businesses seem to be a logical position.
And I think John saw it the same way. We a logical position. And I think John saw it the same way. We discussed him taking other roles inside the company, subsequent roles inside the company. And I think his sense is that it's a good time to kind of think about other things that he can do.
Do. John and I have worked together for 25 years. I think this is just one of those natural evolutions in GE that we do as time goes on to better match up with the markets. The business itself is in very strong shape and in some ways that makes change easier.
Okay. Fair enough. One of
the questions we get quite a lot, Jeff, is kind of where you guys want
to be in mining longer term and maybe this is a good time
to talk about what you want to be what your strategy in mining is, kind of where what's the idea? Where do you want to be kind of
in there?
Scott, what I would say is that you've got positioning around we already have a big business in propulsion. We've already got a pretty big business in power conversion kind of around the mine. It is a fits our footprint from a standpoint of product service, global footprint, energy, water. So we have a nice package of products for it. I kind of look at it the same way I looked at oil and gas 10 years ago.
I don't see doing big acquisitions. I think we can grow sequentially. So I would look at it as a good additional segment where we're about $2,000,000,000 in revenue a year. We can grow probably 10% in an orderly way, relatively high margins and do it over time as a nice way to leverage our footprint. But I don't think you're going to see anything big or sudden from us as it pertains to mining.
I just think we look at it as a sequential build.
Okay. Thanks. I'll pass it on. Thank you. Thanks, guys.
The next question comes from Terry Darling with Goldman Sachs.
Thanks. Good morning. Hey, Terry. Hey, guys. I wonder if you could talk
a little more about your margin confidence, both for the second half and for 2013? I guess in the second half, aviation is pretty locked and loaded. But maybe come back to the execution challenge on the ramp up in wind volumes and how you feel like the supply chain is looking in that context to start? And then Jeff on 2013, talking about 100 basis points of expansion there. Maybe you can talk a little bit about what you see as the drivers there and how contingent that is on the global macro growth rates implied?
So Terry, again, I think if you go back to EPG, we said 30 to 50 basis points this year and 100 basis points in total over 12 13, right? And I think that kind of is still the way we look at it. So if you take a look, we go positive in Q3. Energy drives a big chunk of that. I think we're kind of hitting our sweet spot a little bit in energy, and we see that to be very strong.
We also see good expansion in our transportation business. We have some easy comps in home and business solutions that make margin enhancement. They're actually relatively easy. Keith talked about the Aviation margin outlook. In Healthcare, we had some execution issues that shouldn't repeat going into Q3.
So I see Healthcare going positive in Q3 as well. So we'll have basically 4 or 5 segments positive in Q3 with energy actually very strong in that context. And then if you think about the big levers we've got, we've got value gap, Terry. I think value gap is positive and will remain positive going into 2013. You've got service margins.
Service margins continue to be positive both this year and next. We've got simplification. You've seen what our goals are in simplification and we're going to continue to work at the GE footprint. And then you've got product costs. And I've got a ton of projects going around the company to get our product costs down.
So I think on the macro side, kind of we prepared ourselves for a pretty tough year this year and certainly a volatile year. We haven't been disappointed.
We've seen that volatility play through, particularly
in Europe. And we're going to be disappointed. We've seen that volatility play through, particularly in Europe. And we're going to be equally prepared when you think about 2013. So I would see margin expansion this year between 30 basis points and 50 basis points.
And then next year, I think that'll make up for the total of 100. So between, let's say, 70 50 to 70 basis points next year. And then you're going to have between, let's say, 13 and 11, you're going to have at least 100 basis points expansion over that time period. And I actually see that turning the corner and I think Q3 is going to be pretty good. The close in the second quarter and if you look at the margin performance in energy and the margin performance across the portfolio, down 20 basis points versus the Q1 down more than that, down 50.
I feel really good about the progress we're making and we turn the value gap positive. As Jeff said, R and D as a percent of revenue has gone into a positive. Total cost productivity is positive. And the only issue we're wrestling with is the service equipment mix here in the 2nd quarter. That's a good news problem for us.
So we've made a lot of progress on it and then the cost out I think is the adder that you're going to see us really kick in as we get into 2013.
So I mean confidence in the margins despite the softer macro out there, more company determined factors in the mix here, I guess. And obviously, that's quite positive. In terms of the macro impact on your thinking on orders over the balance of the year, has that softened up a little bit presumably? Or is there more company determined self directed share gains and so forth there? I think at one point you've been thinking double digits were 8% through the first half.
How are you thinking about that?
I think Terry, I think our orders we basically have said that our organic revenue target is up 5% to 10%. Our orders growth basically supports that. I would expect our orders to continue to grow for the year. I think FX adjusted in the high single digits or in that range as the year goes on. But we've built an incredible backlog over the last period of time.
So we've got a big equipment and service backlog. And so we've run kind of book positive book to bill ratios for a long time. So I think some of that has to be factored in as well in terms of when you look at new orders.
Okay. And then just lastly to clean up on WMC, I guess, 2 parts. One, the statute of limitations comment, Keith, you're thinking end of this year is statute of limitations on what the 'six vintage is. And so that's why this doesn't look like it has a long tail. And then did I hear the reserve really didn't change a whole lot even though the claims went up dramatically?
Can and maybe I missed something there, but can you explain that?
Yes. The statute of limitations, there's I'm not giving any legal advice, but the limit that we're seeing that people are reacting to is 6 years. And so you're right in terms of the timing, by the end of this year, that gets down to very small numbers of mortgages that are out there past that period. And that's it seems to be what drove the spike in claims that happened in the quarter. Our reserve did increase dramatically.
It went from $140,000,000 at the end of 1st quarter to $491,000,000 at the end of the 2nd quarter, Terry.
But the $491,000,000 relative to what were the claims in the quarter?
Well, we have the claims balance was $562,000,000 at the end of Q1, it went to $2,700,000,000 I think the thing that you can't see in that, that our reserve balances anticipate future claims incurred but not reported, it's called. So at the end of the Q1, the balance of reserve relative to $5.62 had some future claims estimates in there. At the end of the second quarter, we've increased that estimate of future claims. It's not quite it's less than 100% of the known claims balance, but it's a significant number.
So do we just on disc ops, EPS from disc ops or loss from disc ops for the balance of the year, presumably that number goes a little higher as we move into the back part of the year?
Well, we think we've reserved appropriately. I think the problem is that just have to watch these long tail liabilities. We have an anticipate we anticipate a significant additional amount of claims in WMC. We'll have to see how we do against that. And at Gray Zone, we need to see those claims decline as we go through the second half of the year.
Right now, we believe we're appropriately reserved. Okay. Thanks, guys.
Thanks. Our next question comes from Shannon O'Kellian with Nomura.
Good morning, guys. Hey, Shannon.
Hey. So, Keith, maybe could you walk through maybe the big components of the $555,000,000 year over year increase in real estate?
Sure. If you look at the variance on earnings, let me get the right numbers for you. Lower marks and impairments. So we had $7,000,000 of credit costs and on a variance item versus last year, that's a couple of $100,000,000 of benefit, 256 $1,000,000 on marks and impairments. And we also had last year, we had real estate losses that were not tax affected.
So that was something that increased probably the one time benefits in there, a little over $100,000,000 in the quarter for real estate. And the base income is better from the core business on earnings on both the debt and the equity portfolio. I mean, at the end of the day, when you look at it, what really has happened is when you go do look like global valuation, we did not have declines in valuations on either the debt or the equity book and that just changes the profile of our earnings in real estate. And then you earned a little bit by selling some properties and having some gains.
So I mean relative to this, you said the tax rate didn't run through that? I mean the tax
No, the sale of BP is not in here, but last year we had losses that were not tax affected. And as a result, this year by having none of that, you have an improvement year over year in taxes.
Okay. But sequentially moving forward, it doesn't sound like there's anything that unusual in this 2.20 number.
I think you're plus or minus $50,000,000 $70,000,000 on a run rate from taxes. Other than that, I think if we don't have any valuation changes, then you continue to see the market where we are, we feel pretty good about the outlook for the business.
Okay. And then just on the pricing in energy, so gas and wind turbines down on units, but the pricing up, I mean, last year, the pricing was down a bunch in those segments, particularly in 2Q. I mean, was there was some of this easy comp or was it mix or does that all feel real to you?
Help me out with what you're on. Are you on orders or sales?
I'm on orders. So I think you said up 5 last year. There were some significant order pricing declines on orders. Absolutely.
Shannon, I think there's always some mix kind of flowing through this and I'm not sure that it's going to be up 5 forever. But I do think we've seen it firming in commitments. We've seen that starting to flow through. And I think we expect a decent pricing environment going forward. I mean, you can see it swinging, right?
As you said last year, Q1, Q2, Q3, down 6%, down 10%, down 7% on thermal. Q1, Q4, down 12%. Q1 was down 1%, Q2 was up 5%. Our estimate for the year right now is it should be somewhere around flat, but it's definitely changed the dynamics of supply and demand here on pricing for us.
And just last clarification from me, you offset the lower tax rate in the quarter with restructuring. G Capital now is going to be lower for the whole year or are you going to ramp restructuring to offset the incremental benefit or how is that going to work?
Well, it's in it is in the G Capital run rate now if you're somewhere in the mid single digits. So the disconnect in the quarter was the capital benefits of tax were in G Capital and the restructuring was mostly in corporate. But right now, it will be in the capital run rate at somewhere in the mid single digits.
But for the second half, we now have a lower capital tax rate than we assumed before. Are you going to offset that 5% difference with some more restructuring? Or is
it just going to flow through?
I don't have it planned that way. We are looking at restructuring associated with the cost out and we are evaluating what we can do to continue to accelerate the actions to simplify the company and improve our margins. So there are activities we're working on, but we do not have a plan that way, Shannon. Okay.
Thanks a lot, guys.
The next question comes from Deane Dray with Citi.
Thank you. Good morning, everyone. Hey, Deane. For GE Capital and specifically commercial lending, can you comment on net interest margin on new business being written versus business that's rolling off?
I don't have that number, Dean. I'll have to have Trevor get back to you with it. But I think the net interest margin is very positive. Like most of the metrics, Dean, around margins are improving, but I think we can get you For CLO. Yes, we can get you what flow through is.
Do you
have it broadly for capital? Because that had been a data point in the recovery that we saw significantly better net interest margin
Well, it's up 50 basis points year over year. Yes. I think NIM captures some of that, I think, Dean. Okay.
And then on the Tier 1 comment, just to make sure I have the math right, with the resumption of the dividend that does put some pressure on Tier 1, maybe by 20 basis points or so, but can you calibrate the impact there?
Well, the earnings more than offset it in the capital ratios. If you look in the supplemental charts that we sent out, there's a breakdown of the impact on the Tier 1 ratios from earnings growth, foreign exchange and dividend.
And then lastly, Keith, can you comment on how the tax benefits should help provide some ability to take down GE Capital assets faster? Would that be towards the RED assets? And if it is that still about $80,000,000,000 in expectations for the balance of the year?
Yes. I think the example we're using here is business properties. We had an opportunity. We have a negotiated transaction to sell $5,000,000,000 of real estate assets. The fact that there's a tax benefit associated with the structuring enables us to remove $5,000,000,000 of assets that were they're earning around $50,000,000 So it's just a it's a one time transaction and it's an example.
But I mean, for us shrinking $5,000,000,000 of real estate is a good move strategically for the GE Capital business. Deane, we've if you think back over the last few years, we've beat every commitment on the size of GE Capital. And one of the things I said at EPG that I think we're all aligned behind is to continue to make GE Capital smaller and more focused, and we're going to continue to do that. And I think BP is a good transaction for us. The red ending investments about $75,000,000,000 it's down 17% year over year.
And the BP transaction is a good example of the team continuing to do a good job of running these assets down. If you look at the supplementals, you can see the dividend was 60 basis points on the Tier 1 and the earnings added 30 basis points and that's pretty much why we went from 10.1 to 10.4 from Q1 to Q2. And even with that though, if you look year over year, we're at 10.1%, a full point up even with the dividend on Tier 1 common. And in addition, when you look at total capital, the preferred stock that we issued enabled us to build our non common tier 1 capital and still enabled us to pay a dividend of $3,000,000,000 to the parent keep the capital ratios above what we think we need to have.
Great. Thank you. Thanks, Steve.
The next question comes from Steven Winogre with Sanford Bernstein.
Good morning. Hey, Steven. Hey, so first question on the order growth rate, how much to what extent did acquisitions contribute at all to that number? What would it have been organically?
Total, it's about 2 points. 2 points. Yes. Most of the acquisitions now as you get through the 2nd quarter are all in the run rates. It was in FX was what about 2.2, it was still about 2.2, yes.
Okay.
So it
was kind of flattish.
Okay. And then on the GE Capital reserving front, I think that was Page 9 in the supplemental. You talked about the environment continuing to improve, reserves coming down to 1.86% now from, I guess, 2.26% in the Q2 of 2011. Just give us a sense maybe on the environmental side. I mean, obviously, a lot of this is driven by the U.
S. And by your activity that you're seeing. But at the same time, we're seeing so much uncertainty and volatility globally. And with what's going on in Europe, and you guys have a fair bit of assets over there. So how are you how do you think about this sort of being able to take reserves down relative to the
The reserves aren't being taken down. The write offs are in excess of the reserves. We had about $100,000,000,000 of impact on the balances of reserves from FX. But we're if you look at the numbers by business, the delinquencies are down in every single set of our operations except for the mortgage, which is up seasonally. Non earnings are down in every single one of our businesses.
Our write offs are down in every single one of our businesses quarter over quarter and year over year for all three of those metrics. So we continue to have a portfolio that shows improvements in its performance. And I think you're getting to run rate levels of new provisions on new business. And the only thing that will change that will be the mix between retail, which obviously has higher reserve levels than the commercial, which has lower reserve levels.
And are you but are you seeing the questions in terms of progression to the quarter maybe or any kind of risks as you look out where you feel like that provision rate is in any way at risk as we head into what is potentially a more difficult macro environment?
Well, we've been in that environment for quite some time in Europe. I think the team has had to take a lot of operating actions, right? We've been very prudent from a risk perspective on increasing our underwriting standards. We've lowered our open lines on credits that were less creditworthy. In Europe, I mean, it's a full court press from the risk team about reducing our exposures in places where we don't want to have them.
We had to add reserves and take some provisions in Italy. I think that's a tough place. Previous quarter, we had some in Hungary, but that stabilized. That was really a legislative change on mortgages. We're watching the Spain consumer business.
That's obviously a tough place. But things like the UK continue to perform. Non earnings are down. Delinquencies are down. Delinquencies are up a little bit seasonally, but not any they're less than what normally we would have.
And the main drivers as we shrink that book, the non earning assets and the delinquencies are a higher percent. It's not that they're going up in terms of dollars. So I think that risk team has done a really good job with it in cooperation with the operating team. But right now, we're at sort of run rate levels. If we have specific things that happen, we'll reserve for them.
The biggest change you're seeing across this portfolio is obviously the improvement in real estate values globally, both the debt and the equity book in the quarter. From a valuation perspective on the work that we did on the assets that were covered had increases in the valuations. That's the first time in years versus pressure we've had in the equity and the debt book for almost 4 years here, Steve.
Okay. That's helpful. And then just maybe a last comment on China. What are you guys seeing a little more broadly in terms of demand over there in that trend given the
Steve, we're in a little bit of a different sequence because we're more long cycle oriented stuff. So I think the revenue was up 20% plus in the quarter. Order slightly below that, but still pretty strong. And healthcare is very strong. There's a conversion between coal and gas and the power sector.
There's aviation remains pretty strong. So we're on more we're not on the short cycle side. We're more long cycle driven in China and we still see a decent environment for sure. Just give you some numbers. The revenue was 1 fourth, up 24%, as Jeff said.
If you look at the energy, it's up 34%, aviation was up 26% in the quarter. Healthcare was up 24%. The orders are a little slower. They're up 6%, but there are also a lot of some of the backlog is what we have there. So this is a pretty good performance.
We expect a very strong performance across the year for China.
Okay, great. Thank you. Thanks.
Our next question comes from Julian Mitchell, Credit Suisse.
Hi, Julian. Hi, Julian.
Hi. Yes, so firstly, on energy, it's slightly odd disconnect where your service orders are down and the pricing on the equipment's up. I mean, is there some risk, I guess, that you had sort of a big catch up on service spares and that's now sort of run out of steam? Because I guess the improving fundamentals behind equipment orders and therefore pricing, you think should reflect in service as well?
I don't think there's any risk of that. I think what we saw in the business in the quarter from an orders perspective were that the customers are running their gas turbines as a result of low natural gas pricing. If you look at the revenue in energy and services, it was pretty solid in the quarter. So our team has a positive outlook as a result of the current operating environment. And for us, it's a question of when does it come through.
Okay, thanks.
And then on the Healthcare, I guess that was the business that had pricing down. How worried are you about the ability to drive earnings up year on year in the second half? I understand that the Latin American misexecution normalizes, but pricing is running at what minus 1.5 percent?
Yes, Julien, pricing is about that's just kind of the nature of the business because a little bit on the you're a little bit on the computing learning curve. So that's been kind of the nature. The Centimeters rates are still pretty strong and I think it's in some ways that's a little bit of apples and oranges. So I think we see a U. S.
Healthcare market that's kind of flat to maybe up a couple of points. As Keith said, Europe's very tough, but the emerging markets in healthcare are pretty dynamic. And so I think at EPG, we said healthcare would be 1 plus to 2 pluses, so up single to double. We still think healthcare is going to have a good solid second half of the year. The orders, if you look at the book to bill in the quarter were 1.11, at the half, it's 1.08.
They built a little bit of backlog. They need to execute.
That's what
we're looking for in the second half here, Julien.
Great. And then just finally, the industrial CFOA was down year on year in Q2. Is that just around sort of working capital relating to wind orders or?
Yes, we had there's really 2 things. We had about $200,000,000 of pension funding. We haven't had that before. We expect that to be about $400,000,000 for the year. But as you know, in the K we put out, it was going to be $1,000,000,000 for the year.
So $600,000,000 better for the year than we said. And then we just built inventory. We built $1,000,000,000 plus of inventory in the Energy business. And as you said, it's mostly related to the wind. In the second half here, we're going to deliver close to 1800 to 2000 wind units, almost the full amount of volume we had for all last year.
So we got a good outlook here in the second half in Energy. And wind is going to be a big part of it. Let me just go back to what you said on pension just to make sure you guys understand it. So originally, I think our funding for this year was going to be $1,000,000,000 $1,000,000,000 yes. Now it's $400,000,000 Right.
So it's $600,000,000 better. And I think we've put in the K for next quarter, we put $2,100,000 $100,000 Now we think that's going to be extremely small, maybe less than $100,000,000 So that's a big benefit in cash over the next 2 years that investors should understand.
Great, thanks.
Yes.
The next question comes from Jason Feldman with UBS.
Good morning.
Hey, Jason.
So regarding the discontinued operations charges, WMD and GE Money Japan, are there other divested finance assets where there's still recourse or retained liability that have the risk of popping up like this? Or are these really the 2 big ones that are out there?
These are the 2.
Okay. And on wind, obviously, it's challenging today as the cyclical market and the production tax credit expiring. But how do you feel about that business longer term, given changing economics, the flow of gas prices and a fairly crowded competitive environment in wind?
We said that the next year, we anticipated $0.03 down versus this year in wind. So we're kind of getting ready for that. The industry is reforming kind of outside the United States right now. So we've got some big orders in places like Brazil and Canada and Australia, Turkey, places like that. We've navigated the cycles as well as anybody.
I think we probably make as much money as the rest of the industry combined or something like that. And we have a pretty good window on the future. We're trying to capital is almost infinite here. We haven't over invested. We've got a very flexible supply chain.
And so I think we're just going to kind of ride the wave. But we do think that it's $0.03 headwind next year and we're already taking actions to kind of be able to offset that.
Okay. And then lastly, you mentioned the potential $5,000,000 of real estate divestitures. There was the Everback deal a couple of weeks ago. Has the environment for potential asset sales improved materially recently? Or is it just now at the right time and you've had kind of unique opportunity to take advantage of what's out there?
Sure. It's a steady improvement. You've seen us talk about the valuation changes in real estate quarter to quarter to quarter. And this is just another sign that the market's getting better. I mean, we're able to move $5,000,000,000 of real estate assets at a gain to the company in total.
And the team is going to continue to work on that. So I think, yes, valuations have continued to improve, liquidity is coming in the marketplace. If you've got a good property with a decent lease, you can extract a good price with these in this low interest rate environment. Stabilization evaluations in Europe, the valuation in Europe was better than we anticipated as we closed the Q1. And we expect that to continue.
Great. Thank you. Thanks.
Our next question comes from Chris Kirkland with Oppenheimer.
Thanks. Good morning. Good morning, Chris.
Good a question on the different margin factors in the back half of the year year over year and versus the one half. We're looking at volume leverage, better price flowing through and the anniversary of the acquisitions. Can you kind of gauge what are the relative imports there?
Sure. I think Jeff said it, value gap is going to be positive. That's the difference between the pricing we're getting and the raw material inflation that we experienced or deflation. That is positive 100 in the second quarter. We expect that to continue.
R and D as a a percent of revenue, we've talked about that a lot. We've peaked as a percent of revenue. We still are at a very high level in terms of percent of revenue, but it's peaked in terms of the impact on margin. Our total cost productivity, which is our ability to continue to deliver new volume and take advantage of leverage. It was positive 4 tenths of a point in the second quarter.
We can expect that to continue. And the one dynamic that we're working our way through is the equipment and service margin mix. And but as Jeff said, we expect margins to go positive in the Q3 and it will be positive in the Q4. And to get to the 30 basis points, we need an average of about 80 basis points in the second half. And that's what our teams are working on right now.
Okay. And then on the Turbine Flex launch in the second half, how are you viewing that now? And is that impacting current demand? And how do you view the lag to regaining some share and competitive parity?
Chris, I think the Flex launch is going well. We've had some good we had some great wins in Japan in the Q2 that were fantastic. And I still think our gas turbine share is going to be somewhere between 40% 45 percent. So we want to retain kind of historical averages for that and we'll continue to invest in new NPI in the gas turbine product line as well. So again, I think this is really important for us and Flex has gone well and I think you'll continue to see strong NPI efforts from GE.
Great. Thank you.
Our next question comes from Jeff Sprague with Vertical Research.
Thank you. Good morning, guys.
Hey, Jeff. Good morning, Jeff.
Hey. I guess I really don't understand your pension funding strategy. I mean, I understand the obligation has gone down under this law change, But your annual benefits payable like $3,000,000,000 a year, other companies have kind of remarked, yes, the law has changed, but we don't want to let ourselves get further behind. Just kind of surprised the posture you're taking there. And what how do you see pension playing out then as we look further beyond 2,030?
Well, we've taken a lot of actions here. I think the most important action that we took was we closed the plan to new employees, Jeff. You may not be aware of that, but as a result of that action, the change in the future liability is dramatically the curve is dramatically changed and it's a huge amount of pressure we've taken off that pension plan in terms of the earnings rate that has to be realized over time. I think the benefit payments are less than what you talked about. I don't have the exact number, but it's not as high as what you said.
And our team is working on a risk reduction strategy. We're not going to full risk reduction in terms of going 100 percent to risk off in bonds, but we are reducing our risk seeking exposures as we become additionally more funded from a risk of GAAP perspective. So the team's got a good asset allocation plan. They've got a good track record on returns. We've cut the future tail of this liability by closing the plan to new employees.
And if we we were going to fund $1,000,000,000 this year, we're going to fund $2,000,000,000 next year, we know our anticipation will be fully funded in a couple of years. This change in ERISA funding doesn't really change our outlook much on what we think we're going to do in terms of how we get to fully funded in that pension plan. And we're not seeking additional risk to do it.
All right. I was just looking at the annual report that says $3,000,000,000 in 2012. It actually shows it going up the next 4 or 5 years not down but I
don't think
that's $3,000,000,000 That includes all our health care costs. That includes our retiree and employee health care costs. It's about $1,000,000,000 on pension, Jeff.
Okay. It's principal pension plan. Just on GECAS, obviously, kind of all the neos and everything were so new last year that there was no impact and obviously you're going to roll up your sleeves in Q3. But I mean, you obviously gave us a heads up to be on alert for this. Is there some early thoughts on what we should expect?
I don't have any signal from the team of anything unusual. We continue to reduce our exposure to older assets as you know and we've taken some impairments quarter by quarter by quarter on some of the older assets are less fuel efficient. Our fleet is in pretty good shape in terms of that the percent of older assets and I don't anticipate anything abnormal here in the Q3 Jeff.
Great. Thank you
very much. Yes. Thanks.
Our next question comes from Nigel Coe with Deutsche Bank.
Hey, Nigel. Hey, Nigel. Thanks. Good morning.
Good morning.
I just wanted to turn attention to ENGIE margins in 2013. I mean, I think everyone knows that wind is going to take a bit of a step down in 2013. How confident are you that you can maintain margin or even grow margin with, let's say, dollars 2,000,000,000 less volume?
Well, just on a wind basis alone, if you remove the win business at the margin, you're going to have a margin increase. That's cheating. But that's But that's reality. I mean, we're getting penalized for this year, Jeff. But let's talk again, value gap positive.
So you're going to have pricing ahead of deflation. We see pretty good headwind on that. I think we're going to have a good services mix next year. I think we like the way services could line up for next year. Structural cost down, again you're talking about guys I would reiterate we've said we're going to take $2,000,000,000 of cost out in 2012, 2013 2014 and we're on our way to doing that.
And that's going to take G and A as a percentage of revenue is going to go down a couple of 100 basis points around this place. So you're going to get some structural cost out. So you're going to have good value gap, you're going to have positive mix, you're going to have pretty good service and you're going to have structural cost down. I think that's a pretty good lineup.
Right. But looking at wind in itself, I know it's a very it's a highly variable cost business. If we go down from say 7 to say 5, what happens to wind margins next year?
I would bet that wind just intra wind, right, Nigel? That's what you're asking?
Exactly.
Yes. Wind margins will probably go down a little bit, but it's really de verticalized business. And so I think it's not going to be kind of what you think. But just because of the volume we have this year, my hunch is that the margin rate just intra wind will probably go down slightly.
Okay. And then moving to the broader NGL business, the move to back to positive pricing orders is great news. Can you just remind us what is the lead time on pricing in the order book? When do we start to see that coming through the P and L?
It's probably 18 months, yes. By product.
About 1Q, 2013. And then taking just stripping out NG Management, so that's a $6,000,000,000 BU, I think. It will be a smaller segment by far. Is the intention to grow that if we're thinking about the sources of acquisition funding going forward, should we view Energy Management as up there top 1 or top 2?
I think there's segments within Energy Management Nigel that we like that we might do some of the smaller acquisitions in. I think the key thing is again to give investors kind of a pure play on the power generation side, a pure play on the oil and gas side and a pure play on the energy management side. And I think that's what many people have been asking for and that's what you're going to get in the structure. Okay.
And then just finally, I don't want to get too deep in the weeds of corporate expenses, but it's a tough line to model and it seems to be running above the $3,000,000,000 ex pension guidance for fiscal 2012. Are still running towards that Keith or should we expect that to come down second half of the year?
Say that again? The $3,000,000,000 corporate, are we still running to the $3,000,000,000 corporate? Yes, 3,000,000,000 corporate. I think that's helpful. Yes, we're about $1,500,000,000 at the half and there's some ups downs on one timers, but that's the estimate for the year, yes.
Yes.
Got it. Thanks a lot.
I just want to the pension out of the trust is about $3,000,000,000 I'm sorry, Jeff. Jeff Sprague, sorry about that.
Hey, Chanel, we're a little over our hour. Why don't we take one more question and then close-up?
Sure. Our final question comes from Steve Tusa, JPMorgan.
Hey, sorry. I just had a follow-up. So on the Energy Services decline in orders, what you're saying is they're running their plants. So you're not seeing kind of the normal kind of pace of orders. I guess that would suggest that I mean at some time they've got to service these things and if they're running them for longer hours.
So is that actually that's actually a push out?
Yes. I think Steve like the flow orders that would tend to happen in shutdowns and stuff like that are slower because the guys are running the plants. So I think that But
that's got to come at some
point, right? Again, with cheap gas prices, everything we've thought about this is true. Guys are running the plants hard and they're pushing out the service and stuff like that. And I think that will come back at some point.
Right, right. Okay. Just wanted to
clarify that. Thanks a lot.
No further questions at this time, Mr. Schoenberg. Do you have any additional remarks?
Yes. Thank you, everyone. The replay of today's webcast will be available this afternoon on our website. We're distributing our quarterly supplemental data for GE Capital as we always do today. Just a couple of few announcements here regarding investor events.
Jeff, Emma will be hosting a GE Infrastructure Investor Meeting, which will include all of our infrastructure business leaders. The meeting will be held on Thursday, September 27 in the New York City area. More details regarding the event will be sent in the upcoming weeks. We hope everyone can make it. Finally, our Q3 2012 earnings webcast will be on Friday, October 19.
As always, we'll be available to take your questions today. Thank you, everyone.
Ladies and gentlemen, that concludes the presentation. Thank you for your participation. You may now disconnect. Have a