奇異 (GE) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the General Electric third-quarter 2014 earnings conference call.

(Operator Instructions) my name is Vivienne and I will be your conference coordinator today.

(Operator Instructions) 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 Cribbins, Vice President of Investor Communications.

Please proceed.

Great, thank you.

Good morning and welcome, everyone.

We are pleased to host today's third-quarter webcast.

Regarding the materials for this webcast, we issued the press release, presentation, and GE Supplemental earlier this morning on our website at www.GE.com/investor.

As always, elements of this presentation are forward-looking and are based on our best view of the world and our businesses as we see them today.

Those elements can change as the world changes.

Please interpret them in that light.

For today's webcast we have our Chairman and CEO, Jeff Immelt; our Senior Vice President and CFO, Jeff Bornstein; and our Vice President GE Healthcare Life Sciences, Kieran Murphy.

We have asked Kieran to join to talk about our Life Sciences business.

Now with that, I would like to turn it over to our Chairman and CEO, Jeff Immelt.

Thanks, Matt.

We continue to plan against a global macro backdrop that is volatile and one where some economic projections have recently been revised downward.

That said, we are seeing solid pockets of underlying growth in many of our markets.

The good news for us is that we planned for a volatile environment; our businesses are executing well; and we are tracking to our expectations for the year.

As a result, we had a good quarter.

EPS was $0.38, an increase of 6% versus last year.

Our Industrial segment profits grew by 9%.

Our relative position in key markets is improving.

We have gained share in Transportation, Aviation, Power, and Healthcare.

We had great new products.

Orders grew by 22%.

For the first time in a while, we are seeing volume improving for GE Capital in the US.

GE grew margins by 90 basis points.

We continue to generate benefits from our simplification efforts and are on track for more than $1 billion of cost-out for the year.

Margins improved in six of seven businesses, and our cost-out momentum is strong.

We remain on track for CFOA for the year, so we are running the Company well.

And we are executing on our portfolio strategy.

We launched the Synchrony IPO in July, and as we move forward this will dramatically reduce the size of GE Capital and our presence in consumer finance.

And we have invested in platforms like Milestone Aviation, a helicopter leasing business linked to GE Aviation.

So we are on track to create a smaller GE Capital focused on commercial finance.

At the same time, we announced the sale of Appliances, a legacy GE business.

The Synchrony spin, Appliances sale, and Alstom acquisition from the second quarter are all a part of repositioning GE to be the world's best infrastructure and technology company, with a smaller financial services division.

This is a more valuable GE, with 75% of our earnings from Industrial by 2016.

We are winning in the market.

Orders were robust in the quarter, growing 22%; and this was driven by 31% equipment orders growth and 10% growth in services.

Orders pricing was positive in the third quarter.

Technology drives high-margin share, and we took orders for more than 1,000 Tier 4-compliant locomotives in the quarter and are ahead of the competition.

Aviation continues to enjoy great success with LEAP wins, GEnx share growth, and the GE9X launch orders.

For the first time in a while, Power & Water equipment orders grew in the United States, up 41%.

We now have 13 H turbines in backlog.

And we are enjoying good success in Oil & Gas, with Subsea orders growing by 63% and the launch of the 20K blowout preventer.

NPIs are helping Healthcare to grow in the United States, and new innovations are helping LEDs to grow orders by 60% and Power Conversion by 30%.

Service orders grew by 10%, with growth in five of six businesses.

Aviation commercial spares were up 29%, and Power Gen Services grew by 10% despite some sluggish end-use markets.

Last week we announced new analytical applications and that our Predictivity solution revenues will exceed $1 billion in 2014.

Orders growth was broad-based geographically.

US orders were strong, with growth of 25%; and growth markets expanded by 34%, with five of nine regions up in the quarter.

These include China, up 26%.

Orders in the Middle East, North Africa, and Turkey doubled.

Latin America was up 54%; Africa up 9%; and Canada up 46%.

Backlog is a record high of $250 billion, up more than $20 billion in the past 12 months.

We had a service backlog true-up in Aviation driven by finalization of terms with CFM for LEAP, which reduced the total by $2 billion; nonetheless, we're at record highs.

Strong orders position GE for sustained growth in the fourth quarter and beyond.

Segment profits grew by 9%, with six of seven segments expanding.

Year-to-date segment profit is up 10%, driven by 5% organic revenue growth and 50 basis points of margin expansion.

Organic growth was up 4% in the quarter and 5% year to date.

Aviation and Transportation remain very strong, with equipment growth of more than 10%.

Oil & Gas organic growth was up 10%.

We saw a strong US environment in Healthcare.

Power & Water had tough comps in the third quarter, but will have very strong fourth-quarter shipments versus last year.

For the year, our Industrial organic growth should be at the high end of our framework.

We had another strong quarter on margins at 16.3%, up 90 basis points.

Big drivers continue to be value gap, productivity, and simplification, and we expect this to continue.

Year-to-date margins are up 50 basis points, and service margins have grown by 170 basis points year to date.

With service orders growing by 10% and strong margin expansion, we are seeing some of the early signs that our investment in analytics are paying off.

We remain on track to grow Industrial segment profits by 10%, at least, this year.

We have generated $7.2 billion of CFOA year to date and are on track for $14 billion to $17 billion for the year.

For the quarter, we grew CFOA by 41%.

GE Capital dividends are on track for $3 billion in the year.

We will generate substantial CFOA in the fourth quarter, driven by much higher Industrial earnings and stronger shipments than last year.

We continue to have strong liquidity and balance sheet strength.

GE Capital Tier 1 ratio was 12.1%, up 80 basis points; and we are targeting buyback and dividends of more than $11 billion for the year.

In addition, we expect the Synchrony split to take GE shares below $9.5 billion by the end of 2015.

Our capital allocation continues to be disciplined and balanced.

Now let me turn you over to Kieran Murphy, who is the leader of our global Life Sciences business.

This is a strong GE franchise with expanding organic growth, margins, and cash flow.

Kieran joined GE in 2008 and has 25 years of experience in the Life Sciences industry.

Thanks, Jeff.

Good morning and thanks for giving me the opportunity to tell you more about Life Sciences, a $3.7 billion business within GE Healthcare.

The healthcare industry is moving towards a more precise diagnosis with more precise treatment, to address an annual waste of $350 billion, since most -- around 90% -- of currently marketed drugs only work for about 40% of people.

Precision medicine would improve patient outcomes and reduce healthcare costs, and this is driving the demand for biologics as opposed to chemical medicines, improving efficacy, and reducing side effects.

We are an essential component of drug manufacture for this industry.

Our presence in Life Sciences extends from the research lab, where we help in the discovery of new medicines, to the manufacturing plants, where we deliver capacity and productivity, and then all the way through to supporting clinicians who use our diagnostic agents to make refined diagnoses for tens of millions of patients around the world every year.

The expansion of biological medicines for the treatment of diabetes, cancer, rheumatoid arthritis, and other diseases drives demand for GE products and services, which are embedded in biopharmaceutical drugs.

Today, these drugs make up six of the top 10 revenue-generating medicines.

Also, in the emerging markets, particularly China, there is a growing market need for generic bio drugs, called biosimilars.

This has the potential to be a significant growth opportunity over the next 5 to 10 years.

And the next evolution of medicine, regenerative medicine, which is based on regenerating cells, tissues, and organs in the body, is an area where GE is investing for the future.

All of this adds up to a market growing at around 8% per year.

We have a broad portfolio of products, which are split into two main areas: bioprocessing and research, serving academic and pharmaceutical customers; and diagnostics, aimed primarily at clinicians.

For biopharma manufacturing, we have a leading global franchise built on a portfolio products we acquired with the Amersham acquisition in 2004, and we have continued to build value through successful R&D investments and a series of strategic deals, resulting in a comprehensive offering that enables start-to-finish solutions for production.

This start-to-finish solution creates productivity opportunities for our customers, and I will return to that later.

Our research and applied markets business has a series of strong brands for protein characterization, purification, and analysis, critical to the discovery of these new medicines.

Once selected, these consumables remain embedded in the scaleup of the drug, all the way to an FDA-approved manufacturing process.

Within the diagnostics business, we are the global leader in contrast agents used across the spectrum of diagnostic imaging, including x-ray, MRI, and nuclear medicine.

We supply customers through a global network of large-scale, low-cost manufacturing facilities.

With novel in-vitro technologies developed at the GRC, we have expanded our service offering to allow researchers to better understand the underlying biology of disease, which of course in turn leads to the development of these new precision medicines, which we then help to manufacture.

And that brings me onto how critical we are to the biopharmaceutical manufacturing industry.

Over the past 6 years, biological medicine sales have grown at 10% per annum to $170 billion, due primarily to expansion of monoclonal antibodies for the treatment of cancer and increasing demand for products like insulin.

Our hardware and consumables are embedded in the FDA-approved manufacturing processes of these products.

This manufacture of biologics is completely different to the industrial process for making traditional chemical-based medicines.

It requires cells to grow, to produce specific proteins, which are then extracted and purified.

This is an $8 billion market where we have built a leading position, all starting from the Pharmacia chromatography platform, which was part of our mission.

We continue to build on this product and service platform organically as well as through deals, moving upstream with a series of acquisitions, such as WAVE and Xcellerex, which added fermenters and disposable technologies to the portfolio, and recently HyClone cell media, part of the billion-dollar acquisition from Thermo Fisher.

This creates the start-to-finish solution I referred to earlier.

We enjoy close strategic partnerships with the leading pharmaceutical companies, who depend on us for reliable, high-quality supply.

The move to biological medicines that has driven double-digit growth over the past few years will continue, as expansion in Asia creates new demand for manufacturing capacity.

We are uniquely positioned to help in this expansion, both for global pharma companies wanting to localize production in new markets and for local manufacturers wanting to establish domestic production of crucial medicines.

We effectively partner to deliver our factory-in-a-box solutions.

Our FlexFactory and [QBL] solutions can provide a complete factory in less than half the time required for a traditional plant -- 46 months to less than 18 -- and at a fraction of the cost.

Essentially, we provide a faster and more cost-effective way of creating capacity and access to the emerging markets.

Lastly, we are investing in the cell therapy or regenerative medicine space.

An example of this would be the creation of cells, for example, to reverse diabetes.

The bottleneck right now in this industry is to move from research, or small-scale, to industrial-scale production.

And this is an area where we can bring our bioprocessing tools and expertise to enable this revolutionary change in medicine.

It is an emerging market where we have low revenues today, but we see it as having the potential to create a billion-dollar business in the future.

In summary, the Life Sciences business is a high-margin, high-quality growth business within GE.

We are a trusted supplier to the pharmaceutical industry for biopharmaceutical research and manufacturing.

GE Healthcare's deep relationships with hospitals provide greater access for sales growth in diagnostic and research products.

We leverage GE's great strength in research and analytics from the Global Research Center and our software center in San Ramon.

We use the Global Operations and commercial teams across the world to sell into emerging markets.

This is a business where in 2014 we are delivering strong growth, especially in bioprocessing, with margins expanding by 100 basis points through business integration and organization simplification.

And we are generating in excess of $1 billion free cash flow.

Overall, the deal return for this business is in the low teens.

This is a growing and valuable business within GE, and we continue to see a healthy pipeline and have great confidence in the future growth of the business.

And now I would like to hand over to Jeff Bornstein.

Thanks, Kieran.

I will start with the third-quarter summary.

We had revenues of $36.2 billion, up 1% from the third quarter of 2013.

Industrial sales of $26 billion were up 3%, and GE Capital revenues of $10.5 billion were down 1%.

Operating earnings of $3.8 billion were up 3% in the quarter.

Operatings per share of $0.38 were up 6%.

Continuing EPS of $0.34 includes the impact of nonoperating pension; and net EPS includes the impact of discontinued operations.

We had a small benefit in discontinued operations this quarter associated with truing up taxes on the Grey Zone payment.

As Jeff said, CFOA year-to-date was $7.2 billion.

We had Industrial CFOA of $5 billion and received $2.2 billion of dividends from GE Capital.

In the quarter, Industrial generated $3 billion of CFOA, up $900 million versus the third quarter of 2013.

For the year, we are on track to deliver on the $14 billion to $17 billion framework we provided.

The GE tax rate for the quarter was 18%.

That brings the year-to-date rate for the Company -- for the Industrial Company to 20%.

We expect the total-year rate to be in the high teens.

The GE Capital tax rate was 3% for the quarter, and that was consistent with the low single-digit total-year rate that we previously communicated.

On the right side you can see the segment results.

Industrial segment revenues were up 3% reported, up 4% organically.

Industrial segment operating profit was up 9%, and GE Capital earnings were down 22% on lower assets, the Synchrony minority interest impact, and lower tax benefits.

I will cover the dynamics of each of the segments in the next couple of pages.

First, I will start with other items for the quarter.

We had $0.03 of restructuring and other charges at Corporate.

$0.02 of that related to ongoing Industrial restructuring and other items, as we continue to take actions to improve the Industrial cost structure.

We also had a $0.01 charge related to the announced Appliances disposition.

We moved the business to held-for-sale and recognized prior service costs related to pension and retiree health for Appliance employees.

On a pretax basis, that was $113 million of the total $435 million restructuring and other charges we incurred in the quarter.

I want to give an update on the Industrial cost dynamics.

On the left side you can see our restructuring and gains profile.

For the year, we expect to invest about $1.4 billion in restructuring and other charges, with about $1.2 billion incurred through the first three quarters of the year.

We had gains this year of about $0.01 from the Wayne disposition.

So for the year we are expecting restructuring net gains to be about $0.09.

We like the paybacks and the operating leverage that we are getting from these projects.

The average payback is about a year and a half.

Approximately 55% of these projects relate to product and operating costs, and the rest is associated with SG&A.

On the right side I will give you a quick update on two important cost-out commitments.

First, on structural SG&A we have taken out $674 million year-to-date on our way to over $1 billion for the year.

As a result of these actions, Industrial SG&A as a percent of sales has come down steadily.

Year-to-date we are down 1.6 points versus 2013.

We expect to be about 14% for the year, driven by an additional $300 million-plus of cost-out in the fourth quarter and strong volume.

In Corporate, we have taken actions to reduce our operating costs as well.

Year-to-date we have taken out $436 million through simplification efforts at corporate headquarters, GGO, and reductions in our social costs.

For the year, we expect to deliver more than the $500 million target we established at the start of the year.

As Jeff said, Industrial segment op profit is up 10% year-to-date.

When you look at Industrial including Corporate, operating profit was up 17% year-to-date, 19% in the quarter.

This excludes the investments we have made in restructuring, net of gains and the NBCU income we had in 2013.

I will start with the segment summaries.

First, Power & Water.

Orders in the quarter of $6.4 billion were higher by 9%.

Equipment orders were up 8% driven by strong Renewables, up 42%; partially offset by Distributed Power, down 32% and Thermal down 8%.

Renewables saw strength in Europe, Latin America, and the US, despite the later than expected IRS clarification on PTC eligibility.

Distributed Power continues to see projects push.

We booked about 30% of the units that pushed from the second quarter, but saw some projects pushed to the fourth quarter in 2015.

We believe all these projects are viable, but are located in tougher regions like Egypt, Libya, Angola, and Kazakhstan.

Thermal orders were down on four lower gas turbines, but higher on a gigawatt basis, driven by the large H-class order in the US from Exelon.

This brings our total H units in backlog to 13.

We now expect total-year gas turbine unit orders to be about 105 to 110 versus 125, driven by disruption in the Middle East, and some US customers are shifting from F-class to H-class technology.

This shift has required some of our customers to re-permit their sites and has delayed some orders.

Service orders in the quarter were up 10%.

We had strong orders for upgrades in transactional outage volume, as discussed in the second-quarter call.

AGPs in the quarter were 18 versus 15 a year ago.

Revenue of $6.4 billion in the quarter was down 2%, with equipment down 8% and services up 6%.

Equipment revenue was driven by Distributed Power, down 35% on 24 fewer units versus last year, partially offset by strong Renewables, up 18%.

Revenue was a little lower than expected.

Wind units were 150 less than planned, driven by late IRS guidance; but we still expect to ship about 3,000 units for the year.

Distributed Power was also lower by about 10 units as projects were delayed.

On gas turbine units, we have shipped 64 units year-to-date and now expect to ship about 105 in the year versus the 85 to 90 we planned.

Service revenues in the quarter of 2.9 billion were up 6% on higher AGPs and upgrades.

From an operating profit perspective, we were just shy of $1.2 billion.

It was down 8%, driven by negative price and mix from higher Wind and lower Distributed Power, which more than offset cost benefits, including SG&A, which was down 10%.

Margins were down 110 basis points in the quarter.

For the fourth quarter, we expect strong double-digit revenue growth on higher gas turbine shipments, up about 40%, and higher wind turbines, up about 30%, bringing the total year's shipments to about 105 on gas turbines and about 3,000 wind turbines, which is within the original framework.

As we discussed on the second-quarter call, we still expect total-year AGPs to be higher and Distributed Power units to be lower, impacted by the delays we discussed previously.

In Oil & Gas, orders at $4.9 billion were up 10%.

Equipment orders were up 14%, up 20% organically, excluding the impact of the Wayne disposition.

We had strength in Subsea, up 84%, with strong Brazilian orders; Downstream Technology up 64%, driven by demand in small-scale LNG, partially offset by D&S, which was down 12% in the quarter.

Service orders were up 6% with strength in Subsea, up 27%, and Turbomachinery up 8%, partially offset by M&C, which was down 8%.

Organically, M&C was up 7%, with demand for control solutions improving in both Industrial and Oil & Gas applications.

Revenues of $4.6 billion grew 7% year-over-year, with equipment revenue higher by 9% and services up 4%.

Operating profit of $660 million was up 27% on strong cost performance, project execution, and a positive value gap, offset by lower M&C mix.

Margin rates expanded in the quarter 240 basis points.

Our outlook for the year remains intact for the business, with double-digit op profit growth.

However, we are moderating our view of orders growth from high single-digits to low double-digit to mid single-digits.

We expect orders to grow in the fourth quarter.

As you know, orders in this space are very volatile, and we continue to see some big projects pushed to the right.

Next I will do Aviation and Healthcare, starting with Aviation.

Travel demand continues to grow, with RPKs August year-to-date up 5.1% domestically and up 6.3% internationally.

Orders for Aviation were very strong in the quarter, up 30%, with equipment orders up 35% to $6.8 billion, and services higher by 20%.

Equipment strength was led by $3.8 billion of GE9X orders for Emirates, Etihad, and Lufthansa.

We also won $1.3 billion of CFM LEAP orders, bringing our program to-date win rate on the next-gen narrowbodies to 78%.

Military equipment orders were down 40%, but up 3% year-to-date, and are on track to be flat for the year.

Service orders were driven by strong commercial spears, up 29% to $30.9 million a day, partially offset by military spares weakness.

Revenues in the quarters of $5.7 billion were up 6%, driven by commercial equipment revenue, up 22%; military, up 8%; and services down 1%.

Commercial spares were up 19%, offset by military services, down 17%.

Leverage in the operating profit was strong with 16% growth on better price performance and volume, partly offset by higher GEnx shipments, with 65 units in the quarter, up 39 from the third quarter of 2013.

SG&A ex-Avio was down 4% in the quarter, and margins expanded 190 basis points.

Overall, David and the Aviation team delivered a strong quarter.

We expect the Aviation business to continue to expand its technology leadership.

GEnx shipments will be higher in the fourth quarter, and we still expect to ship about 300 units for the year.

In Healthcare, orders were up 1% with better growth in the US, which was up 3%.

Europe was up 4% and Latin America was up 18%.

This was offset by Japan, down 12%, and the Middle East, down 15% in the quarter.

Equipment orders of $2.7 billion were flat on lower Japan and Middle East orders.

Our US equipment orders were up 4%, driven by very strong Imaging and Ultrasound orders, which were up 10%.

We believe the US market was up as well, but more modestly.

China HCS equipment orders were up 6% in the third quarter, and they are up 11% year-to-date.

China growth was slower, driven by tender decision delays in public hospitals.

In Kieran's business, Life Sciences, equipment orders were strong, up 15%.

And service orders for Healthcare in total were up 4%.

Revenues in the quarter were up 4%, with developed markets up 2% and emerging markets up 11%, including: China, up 8%; Latin America, up 30%; and the Middle East, up 16%.

Op profit grew 9%, driven by volume and strong cost productivity, offset by negative price.

SG&A was down 5% in the quarter.

Looking forward, we expect the US to remain volatile, but our products are performing well.

Our position in China is very strong, and we believe underlying healthcare demand remains strong in the long run, with an aging population, increasing insurance coverage, and continued government spend in healthcare.

As you heard today, we have a very exciting Life Sciences business with a unique position.

Simplification will continue to transform our cost structure in this business.

Next is Transportation, which had a very strong quarter.

Orders in the quarter were up 134%, led by equipment orders, up 3 times or $2.1 billion.

The business took orders for more than 1,000 Tier 4-compliant locomotives to be delivered over the next 3 years.

Locomotive loading is nearing current capacity levels for 2015.

Carloads continue to be strong, led by agriculture, petroleum, and intermodal; and network velocity continues to be a challenge.

Mining equipment orders remain weak, down 38%.

Transportation service orders were up 8% in the quarter.

Revenues were up 10%, driven by locomotive volume, with units up 49%, partially offset by services down 3% on mining weakness.

Operating profit was higher by 12%, driven by local volume and cost productivity; and SG&A was down 5%.

That allowed margins to improve 40 basis points in the quarter.

We are very pleased with the team's execution on the Tier 4 loco and expect to continue to fill out our order book for 2016 and 2017, and we feel great about our ability to execute against this orders growth.

Energy Management, the business continues to improve.

Our orders in the quarter were down 1%, with Digital Energy down 25% and Industrial Solutions down 7% on weak European demand, and the impact of exiting certain markets and products as part of restructuring.

Power Conversion was strong, up 30% in the quarter, driven by Marine.

Backlog grew 9%.

Revenues of $1.8 billion were down 1%.

Op profit of $59 million was up 3 times on strong cost and restructuring execution.

And then Appliances & Lighting.

The core industry within Appliances was up 9% in the third quarter; retail was up 9% and contract up 7%.

Revenue in the quarter was up 1% to $2.1 billion, with Appliances up 2% and Lighting down 2%.

Appliances revenue was driven by volume, up 3%, while strong LED growth of 59% in Lighting was more than offset by traditional product declines.

Operating profit of $88 million was higher by 14% on strong productivity.

SG&A was down 11%, and margins expanded 50 basis points.

As we announced in early September, we reached an agreement with Electrolux to sell our Appliance business.

We hope to close that transaction in mid-2015.

Next I will cover GE Capital.

As you know, we successfully completed the IPO of 15% of our North American Retail Finance business, now known as Synchrony Financial.

As a publicly traded company, CEO Margaret Keane and the team will host their own investor call later this morning.

We continue to make progress on separation efforts and expect the split-off to take place towards the end of 2015, subject to regulatory approval.

In the meantime, Synchrony will remain consolidated in GE Capital financials.

GE Capital's revenue of $10.5 billion was down 1%, primarily from lower assets, partially offset by higher gains.

GE Capital's net income of $1.5 billion was down 22%, principally driven by lower assets, which includes minority interest impact resulting from the Synchrony IPO and lower tax benefits.

Earnings were also affected by the timing of our Nordics consumer platform exit, which as previously announced moved from the third to the fourth quarter.

ENI of $365 billion was down $19 billion or 5% from last year, and down $7 billion sequentially.

Nonstrategic ENI was down $11 billion or 8% versus last year.

Net interest margin in the quarter was 5%, which is essentially flat.

GE Capital's Tier 1 common ratio on a Basel 1 basis remains in a strong position and ended the quarter at 12.1%.

This is up 40 basis points sequentially and 79 basis points year-over-year.

Our liquidity levels are also strong.

We ended the quarter with $80 billion of cash, with $15 billion attributable to Synchrony.

Our commercial paper program remains stable at $25 billion, and we have substantially completed our long-term debt issuance for the year at $9.4 billion.

On the right side of the page, asset quality trends continue to be strong and stable.

Now I will walk through each of the segments.

The Commercial Lending and Leasing business ended the quarter with $170 billion of assets, flat to last year.

On book core volume was $10 billion, up 5%, driven by increases in both the Americas and international.

We continue to see strengthening in the US, largely in the equipment financing, with volume up 7%.

The team is staying disciplined on pricing and risk hurdles, and the new business returns in both lending and equipment were largely in line with the first half of the year.

Earnings of $617 million were up 29%, driven by lower marks and impairments, primarily in our Corporate air book, as well as higher gains and tax benefits.

The Consumer segment ended the quarter with $141 billion of assets, up 4% from last year, driven by Synchrony.

Net income was $621 million, down 31%.

As I mentioned earlier, Synchrony team will cover all the details of their quarter in a call later this morning.

Our share of their earnings was $509 million, down 25%, net of minority interest and investment in its standalone capabilities.

The international Consumer business was down as well from the effect of lower assets, which were down 16% year-over-year, consistent with last quarter.

In Real Estate, assets of $36 billion were down 9% versus prior year.

The equity book is down 28% from a year ago to $12 billion.

Net income of $175 million was down 62%, primarily from nonrepeat of prior-year tax benefits.

In the current quarter, we sold 72 properties from our Real Estate equity book, with a book value of roughly $0.5 billion, for $122 million in gains.

In the verticals, GECAS earned $133 million, down 23%, from lower assets and tax benefits.

Impairments, including our annual review completed this quarter, resulted in $197 million after-tax impact, roughly in line with the third quarter of last year.

The impairments are driven by value declines in 50-seater regional jets, older 767s, and older A320s.

Overall, the portfolio is in great shape, and we finished the quarter once again with no aircraft on the ground and zero delinquencies.

We do not anticipate any updates in fourth quarter to the GECAS impairment process.

New volume was much stronger at $1.4 billion, up 62%, with very attractive returns in line with the first half of the year.

As Jeff mentioned before, we were excited to announce the Milestone acquisition on Monday.

The acquisition combines GECAS' global reach and leasing expertise with a growing helicopter financing business that will diversify our business and put our capital to work at good returns.

This is in line with GE Capital's strategy to grow in the midmarket and Industrial verticals space where we have deep domain expertise and are competitively advantaged.

The deal is expected to close in 2015, pending regulatory approvals.

Energy Finance earned $61 million, down 59%, resulting from lower assets and gains and higher impairments.

EFS volume was up strongly at 152% year-over-year at very attractive returns.

As you look forward to the fourth quarter, we expect GE Capital to be about $1.8 billion in earnings, including the gain from exiting of our Nordics business.

However, we continue to aggressively work on opportunities to reduce the size of our nonstrategic portfolio, and these transactions could impact earnings and the tax rate in the fourth quarter.

So overall, Keith and team continue to execute the portfolio strategy and deliver solid operating results.

With that I will turn it back to Jeff.

Thanks, Jeff.

We remain on track for our 2014 operating framework.

Industrial segment earnings were driven by sustained organic growth and margin expansion and are expected to grow by at least 10% this year.

GE Capital is on track, with higher earnings in the fourth quarter due to the timing of the Nordic consumer finance platform sale.

Corporate is on track as expected; and as expected, Corporate has been a drag in 2014 because of restructuring investments exceed gains.

However, this will be a real tailwind in 2015.

Cash and revenues remain on track and we expect fourth-quarter organic revenue to be robust.

Despite a volatile global environment, GE expects to have a good fourth quarter and deliver on our 2014 framework.

In addition, we are changing the portfolio to position GE for long-term growth.

The GE team has done a good job of both strategic and operational execution.

With a big backlog, high levels of recurring revenue, and a restructuring program already in place, we believe that GE will deliver for our investors in times like these.

Now, Matt, let's turn it back over to you and take some questions.

All right.

Thanks, Jeff.

Why don't we open it up and take some questions now?

(Operator Instructions) Scott Davis.

Hi.

Good morning, guys.

Appreciate the detail on the presentation; it's really helpful.

Guys, I wanted to get your sense.

If you look at the markets, it is kind of telling you that the world is falling apart; but then we see the numbers here and they look pretty darn good overall, and overall in the space haven't been that bad.

What are your customers telling you?

Are we at a risk of a real pullback in customer activity as we get into the fourth quarter, just based on this new growth contagion that is out there, this growth fear?

You know, Scott, just give you a view of the world.

Again, there is certainly a lot going on, but I would say the US is probably the best we have seen it since the financial crisis.

Right?

When you look at rail loadings and things like that, you've got a decent and healthy US market.

Europe is slower, for sure.

But I think most industrial companies haven't counted on Europe and Japan for much incremental growth.

Then as you go across the emerging markets -- and 2 weeks ago I was in the Middle East and North Africa -- still pretty healthy, robust.

China I think is more of a micro story than macro story now.

Aviation, Healthcare very strong.

If you are in the right industries, very robust.

Mexico better.

So if you look at it geographically, Scott, I think it is this slow growth pattern with volatility, but not a lot different than what we have seen in the past.

And then industry by industry, Aviation remains strong, Transportation remains strong.

Power depends on what segments you're in.

Oil & Gas, you definitely have more caution in Oil & Gas.

But I have been with a bunch of the CEOs just in the last couple days, and the long-term projects I think are still underway.

But there is certainly, I would say -- there was already caution before the last, I would say, month or so around there.

So I think it fits a pattern that we have seen the last couple years, and the underlying activity is still reasonably healthy, but not universal.

There are some parts that are clearly stronger than others.

Okay.

Fair enough.

Just -- Healthcare, it's unusual for you guys to make a big management change like that in the middle of a quarter -- or middle of the year, I should say.

The Healthcare numbers were pretty good.

What was it, Jeff, that you didn't like about the direction of what is going on in Healthcare, that really catalyzed a change there?

You know, Scott, these things were always individual by individual.

I think John Dineen was a really good leader here; I think he has got good opportunities.

As you saw yesterday, he's got a nice new assignment.

Sometimes I just think it works for the individual and for the Company.

So, again, I think the Healthcare business is still a key business for us, but it gives us a new set of eyes and I think in John's case, the future makes sense for him as well.

I normally don't ask three questions, but people are asking questions.

Why put a non-Healthcare, non-domain experienced guy into a business like this?

Jeff, you have said in the past that you really want more domain expertise within the businesses.

John is -- I think he is very good, obviously, but it came as a little bit strange to put a non-Healthcare guy in charge of the Healthcare business.

Could you just explain that a little bit?

And then I will pass it on.

Yes, yes, Scott, look, I loved Flannery's global experience; I thought that was outstanding.

He has got a great strategic mind.

But he has more experience in Healthcare than I had when I became the CEO of the Healthcare more than 10 years ago.

So I think he has got really a nice background and has real hands-on experience with it outside the United States.

Okay.

Fair enough.

Thanks, guys.

Nigel Coe.

Thanks.

Good morning.

Yes, I was quite -- obviously very pleased to get the detail on Life Sciences; a real gem of an asset, but relatively small in the scheme of things.

I am wondering, Jeff, is this a business that you want to grow a bit more aggressively going forward from here?

Well, there's two -- maybe I will start and then, Kieran, turn it over to you.

I think in the bioprocess manufacturing we have been able to do bolt-on acquisitions behind organic growth, and I think that has been a great GE success factor over time.

So I think that formula is one that we continue to make -- get experience with.

Then the other side, on the diagnostic pharma side, Nigel, that is more of a heavy R&D side, right?

So I would say, maybe bolt-on acquisitions on the bioprocess manufacturing; maybe some R&D collaborations; but I don't see a big deal.

I don't know.

Kieran, why don't I turn to you?

Yes, I agree, Jeff.

Look, I think the prognosis for growth for this business is actually very strong.

We have a great portfolio, especially in the bioprocessing space.

We have done some nice deals here to give ourselves the start-to-finish that I referred to in the pitch.

And there is no question that with the innovation in medicine moving more towards biology and really strong, continued growth in monoclonal antibodies, we are in a great position to serve that market.

And, of course, if you look at what is happening in the emerging markets, especially in places like China, and the need for infrastructure, I think our solutions are ideally suited to that.

So I see a great opportunity for growth.

From our standpoint, the GE infrastructure globally gives us such a great reach into the markets, especially with places like China and the Middle East and Latin America.

The infrastructure of GE gives us a great backbone to actually reach into these markets and do projects in difficult situations.

Okay, thanks.

Then, Jeff, as a follow-on, expressing confidence in the 7% organic for the year is obviously encouraging, given the headlines.

But you clearly have the backlog in place, but you talk about some deferrals into 4Q, maybe 2015, in Oil & Gas and perhaps Power.

So I am wondering to what extent that you are concerned that perhaps these delays might push into 2015 and therefore maybe 4Q comes in a bit weaker.

So what gives you confidence that GE can get the 7% for the year?

I would circle back.

I don't know, Jeff, why don't you -- the Power stuff is really the hub of, I guess, our confidence.

I don't know, Jeff, you want to --?

Yes, I mean, we have a fourth quarter in front of us that we think is going to be very strong.

Just for instance, year-over-year in the fourth quarter our gas turbine shipments are going to be up more than 40% year-over-year; our Wind shipments will be up more than 30% year-over-year; Aero shipments 16%.

Even commercial and military engines are going to be up mid double-digits, and we are looking for a 30% increase in locos year-over-year.

So we are looking at a fourth quarter that we think is going to be very strong.

And we expect the Power business to be up substantially, substantially in the fourth quarter.

And this stuff is, Nigel, that is already sited and financed and in backlog and stuff like that.

Yes.

For the most part, most of the gas turbines -- or 100% of the gas turbines are in backlog; we are in good shape on Wind.

So a good part of the volume that drives the fourth quarter we stand pretty firmly on.

I would say, as I have said before, Distributed Power is the place where we have seen the most volatility.

And based on the places we are selling, I think that is going to continue to play out that way.

But I think we feel good about a strong revenue quarter in the fourth quarter.

That's very helpful.

Just a quick follow-on to that.

Obviously based on equipment orders, shipments in place for 4Q, normally that would dent margins.

But you had service margins up so strong in this quarter; so I am wondering.

Can you maybe add some color on where you stand for margin in 4Q as well?

We expect to continue to progress on margins.

We are on this journey to 17%-plus 2016.

We have got -- we are 50 basis points up third quarter year-to-date, and we expect to be on that trajectory to get to 17% in 2016.

So we would expect to continue to progress.

I just think the tailwinds -- the micro stuff -- SG&A is good, value gap is good, and I think the service productivity actually has good momentum as well.

Okay.

Thanks, Jeff.

Steven Winoker.

Thanks and good morning.

Maybe just -- it's been a little while now that you have been moving forward with Alstom.

How has your thinking continued to progress as the time has passed; we've got another quarter of information behind us from Alstom and within your business.

Where are you in the process?

And how are you thinking about the opportunity now versus a few months ago?

Steve, here is what -- again, we are just in the process itself.

I think the regulatory stuff is all going per schedule.

We haven't seen anything that is a surprise.

They are in the same markets out there that you guys see every day.

So some good, some bad on that; but not a big surprise there.

And I would say synergies, the opportunities for synergies, are probably greater than what we would have expected.

So we continue to work on that.

So I think other than that I don't really -- there is not a lot more color I can add, Steve.

I will do more at the outlook meeting on Alstom.

But I would say we still like what we see.

We still think there is good potential to run it as a combined entity better.

Okay.

Then maybe just going -- diving a little bit into the order price profile on slide 3. Obviously, pretty positive across most of those segments; and then we saw yet another quarter where Healthcare was negative -- and kind of used to that at this point.

Obviously, you called out the positives going on in Life Science.

So maybe just continue to give us a little understanding.

Obviously this must be within systems.

What is happening?

Is there any change here?

How the Affordable Care Act you are seeing play out so far, and maybe are you looking at this thing with a little more of a fresh eye these days?

Just some thoughts on that front.

Yes.

I think Healthcare has been, everything else being equal, reasonably consistent for quite a long period of time.

We have seen quarter-over-quarter, year-over-year equipment pricing in the down 140 basis points, roughly, 150 basis points at a point in time.

A little bit better on service.

But I don't think we see anything that would suggest that the dynamics around those product cycles, the market behavior around price is changing.

So we are very focused on winning with technology and gaining share that way.

And as I said, for the first time this year we had a reasonably strong equipment market here in the US for us, up 10%.

We don't think the market was up that.

So we need to win on technology and execution, and I think the price dynamics of equipment and imaging are what they are.

And I don't see anything changing there.

Steve, there is a little bit of Healthcare that is on the high-tech learning curve, so you get -- our CM rates are equal to or greater even sometimes when the price is down, because we are getting the cost down in the product as well.

So it has a unique perk, I would say, visibility or in compared to some of our other products and technologies.

Steve Tusa.

Hey, guys.

Good morning.

You've got obviously a big equipment number coming through in the fourth quarter.

There will be a bit of a mix impact.

I think you gave some color on the margin; seems like it is going to be up.

Maybe if I just look at normal seasonality, which has been pretty consistent in the last few years, and profits, 3Q to 4Q you guys have been up about 37%, 38%.

Will you be up similarly in the fourth quarter from an operating profit, Industrial profit perspective?

So somewhere around low 6s, 6.1 type of number for the fourth quarter?

Or it will be better than normal seasonality?

No, we expect to be up, obviously, with the higher volume in the fourth quarter; and we expect to continue to build on the cost gains we've had throughout the year, both in terms of SG&A and Corporate costs.

So we are expecting an increase in -- we expect to earn more in the fourth quarter, for sure.

And we are expecting strong double-digit revenue growth, and we expect to continue to make progress on margins.

Right.

I guess from a -- will it be less than the 50 bps in the fourth quarter year-over-year?

It sounds (multiple speakers) the mix is going to be tough.

We have a very heavy equipment quarter in the fourth quarter, for sure.

But as I said, we still -- we expect to make progress on margins for the year.

We expect to stay on that trajectory to get to 17%-plus in 2016.

So (multiple speakers) 50 basis points in the third quarter, and I would expect us to have a decent year.

Okay.

Then one last question, just on the turbine forecast for next year you guys have.

The sales are a little bit higher; orders are a little bit lower.

Can you still grow your turbine shipments next year at this stage of the game?

Steve, when we do the outlook meeting in December, we will give you a little bit more color on what we are thinking about 2015.

There is also going to be -- there is starting to be, Steve, a higher mix on big units as well.

So you just -- we will try to spell that all out.

But you definitely see the market mixing towards the bigger units.

Deane Dray.

Thank you.

Good morning, everyone.

Hey, on Synchrony, the timing of the split-off transaction.

I know you are saying late 2015; it depends on regulatory approvals.

But for modeling purposes, what do you suggest that we be using?

You are right.

We are hopeful that we can get the exchange executed in late 2015.

If I were modeling next year, I think I would just model Synchrony in the year and the exchange happening on 1/1 of 2016.

We can't tell you today exactly when in late 2015.

I think for modeling purposes, I would just -- I would have it in for the year.

Great.

That's helpful.

Then showcasing Life Sciences today, we talked a lot about growth.

Maybe you can share with us what the returns have been on these investments.

I don't know if you can still trace back to the returns on Amersham, but maybe start there.

Yes, we have looked at that.

If you go back, I believe Amersham was done in 2004.

When we go back and look at it, over the last roughly 10 years in this business we have collected about $10 million of cash.

Obviously, we had the Amersham investment; we had several other investments along the way.

We have got, order of magnitude, $13 billion invested.

If you look at the business today at $1.1 billion to $1.2 billion of EBITDA, we think the multiple -- if you split it the way Kieran described it, if you think about biopharma and research as a very high multiple of EBITDA, based on transactions Merck and others have done, and the diagnostics business being a lower multiple business, lower growth, lower margin at 15, 15.5 times those EBITDA numbers, you get a total value of, call it $27 billion: $17 billion what we got today, roughly; $10 billion of cash collected, versus the $13 billion we've got into it.

You get something like a low teens IRR, if you will, life-to-date.

Now having said that, we think Kieran has got his business accelerating from here, and we are very bullish on the biopharma space.

So we think the returns from here forward are going to be more attractive than that.

I don't know if I answered your question.

Jeff Sprague.

Thank you.

Good morning, everyone.

Just a couple quick ones.

Jeff, you noted the unit outlook is a little cloudier on energy now size of units are moving up.

But I think the color in the quarter was Thermal order dollars were down but you had higher gigawatts in orders.

Can you give us a little bit of color then, what is really going on, on new unit pricing?

And does that imply that these first H units really go out at very, very tough pricing?

Sure.

It is definitely a dynamic with the H. As we talked about, we've got 13 in backlog and we have some customers that are rethinking what otherwise might have been F-powered capacity with H-powered capacity.

Generally speaking, it is one H unit will replace two F units.

So on the pricing front, these are launch orders, so the initial H orders are going to be tougher.

No question about that.

We will get down the cost curve as quickly as possible.

But I think generally speaking, we think the technology has been incredibly well received.

And we're where we thought we would be, if not better, given the early 2014 launch of the technology.

So we feel like we are more competitive.

We had a great quarter in the US.

Took 11 units in the US, very strong.

I think the other dynamic that I would talk about, Jeff, is the mix of regions is probably better.

The US is probably the place where there is the most interest right now, and that has tended to be a slightly better-margin type region for us.

So that is a positive.

All right.

I am just trying to understand the disconnect between Power & Water order price up 1.3% (multiple speakers).

I got you; I'm sorry, Jeff.

Yes, I get it.

I'm sorry.

The H turbines, because they are new, they are not in the OPI number.

There is no price to compare to last year.

Okay.

I'm sorry.

I misunderstood the question.

Well, you partially got what I wanted to know, too; but there was a second element implied, so I appreciate that.

Then, just on -- maybe stepping back to the Milestone deal, maybe I wasn't thinking about it this way, but focusing on the core in GE Capital, I didn't really think that meant M&A was on the table.

I thought that was probably more an organic idea.

What is your appetite for M&A in Capital moving forward?

Jeff, here is what I would say.

This is a strike-zone deal for what we do in GECAS.

We know how to do this.

It is an operating lease business.

It matches very well with our footprint geographically on where we have resources and operating capabilities deployed.

We know how to manage businesses like this that are very asset intensive.

And we really like what the returns look like over time.

It also lines up, like GECAS does, with our Aviation business.

A very high percentage of this portfolio are GE-powered helicopters, and we think that provides a lot of synergy.

So we have been, I think, reasonably consistent saying that we were going to continue to grow our core midmarket and industrially aligned verticals as we move forward.

At the same time, we are very aggressively working the $135 billion of nonstrategic parts of the portfolio, and we have got a lot of things in motion there.

I think the other way you need to think about it a bit is we have got capital available.

And we would rather deploy the capital at very attractive returns than put the capital to work in a bank at a negative carry.

So I think this makes all the sense in the world, and I don't think in any way is it inconsistent with anything we or Keith have communicated.

John Inch.

Thanks.

Good morning, everyone.

Just given the puts and takes in Power & Water between orders and heavy shipments, and I know it has got such a big influence on cash flow.

Jeff Bornstein, are we thinking that operating cash for the year is going to be toward the lower end of the $17 billion?

Or is it too close to call?

As we sit here today, I would say we expect to be about the midpoint of the range.

We have got a big fourth quarter in front of us; no question about it.

If you think about last year, we did $5.5 billion of CFOA industrially in the fourth quarter.

Based on the earnings improvement, what we expect to get from a working capital improvement by liquidating all that inventory in the fourth quarter, we think we have got a path to be about midpoint of the range between $14 billion and $17 billion.

Going to have much higher Industrial earnings, John, and much higher shipments.

So we ought to have a good fourth quarter, I would say, on cash.

Okay.

Then FX.

One of the dynamics of GE that makes you different is just you carry a high value of your equipment versus other industrial companies.

This could be for either of you: Does FX and the decline of the euro and the yen, does that open a door to Mitsubishi and Siemens really to become much more aggressive on the OE pricing, that could influence the dynamic going forward?

How are you thinking about it based on everything you know so far?

I would say, listen, a great part of our Industrial footprint here is that we make product all over the world, so we can be flexible about where we make product.

If FX becomes that big an issue, we can be flexible about where we make product.

So I don't think we are anticipating FX being a competitive issue for us.

I would echo that, John.

I think the dynamic is really one where we've got the right global footprint to do whatever ultimately we need to do.

Andrew Obin.

Yes, good morning.

Just a question.

You highlighted H turbines being successful and some of your customers really looking into them.

But you also said that it requires some re-permitting.

How disruptive could it be?

And could we see a pause in North American cycle because of that?

No.

In North America I think a lot of that planning is already underway.

So I would say, Andrew, not much.

I think the whole product line is well positioned, and it is great to have a large block turbine; but we also are still seeing activity on the other turbines as well.

So I think -- I don't know, other than the 13, we've got another 15 Hs that are out there being --

Globally.

Globally, which should enter the backlog sometime imminently.

So we are just seeing pretty good momentum there.

And I don't see it disrupting let's say the flow from commitment to order to revenue.

Sure.

Now quickly if I could just squeeze one more in.

Measurement and Control, could you just give us a little bit more color how it is improving and where we are on the cull within that division?

The organic -- we have done some dispositions there, Andrew, so I think the organic is up mid single-digits range, 7%, something like that.

Yes.

So we have seen that be pretty decent in the last quarter.

Yes.

I would say, excluding the disposition impacts, the M&C businesses have started to turn a little bit organically.

Orders in the third quarter were up 7%; revenue, as I said in the script, were up 8%, and they are getting some operating leverage.

We have seen a little bit more strength in Oil & Gas applications and Industrial applications around Controls.

So we are hopeful that we are treading more positively here in the M&C business.

As you know, that is important.

It is a very profitable business for Oil & Gas.

You know, Matt, I want to just -- before we cut off today, I think we talked a lot about execution in the quarter, but I wanted to elevate just a bit.

We really remain on track to get the Company at 75% Industrial, 25% GE Capital, while growing EPS every year -- this year, next year, and into the future.

I think in addition to the good execution in the quarter, the strategic moves the Company continues to make -- with Alstom, Appliances, remixing GE Capital -- continues to make this a more valuable Company.

So I think that's in addition to the current quarter operations; I think we are executing on the portfolio to create a much more valuable Company.

Great.

Thank you, Jeff.

A couple of quick announcements.

A replay of today's webcast will be available this afternoon on our website.

We will be distributing our quarterly supplemental data for GE Capital later today.

We have two upcoming investor events, the first on Tuesday, December 16.

We will hold our annual outlook meeting in New York City.

And on Friday, January 23, we will hold our fourth-quarter 2014 earnings webcast.

As always, we will be available today to take your questions.

Thank you.

Thank you, ladies and gentlemen.

This concludes your conference call.

Thank you for participating today.

You may now disconnect.