GE Aerospace (GE) Q1 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the General Electric First Quarter 2012 Earnings Conference Call. [Operator Instructions] My name is Chanel, and I'll 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, Trevor Schauenberg, Vice President of Investor Communications. Please proceed.

Thank you, Chanel. Good morning, and welcome, everyone. We're pleased to host today's first quarter 2012 earnings webcast. Regarding the materials for the webcast, we issued a press release earlier this morning, and the presentation slides are available via the webcast. Slides are available for download and printing on our website, www.ge.com/investor. As always, elements of the 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; and our Vice Chairman and CFO, Keith Sherin. Now I'd like to turn it over to our Chairman and CEO, Jeff Immelt.

Great, Trevor. Good morning, everybody. Thanks. This year, we outlined 2 important catalysts for GE: double-digit earnings growth in Industrial; and a dividend from GE Capital pending Fed review. In the first quarter, our Industrial business has achieved a 10% earnings growth, and GE Capital is exceeding our expectations, so we really had a good quarter. Externally, global markets are improving but volatility remains. Infrastructure demand is generally healthy and the U.S. is better. We're watching Europe with caution. We had the strongest Industrial growth performance since the crisis: 20% orders growth, 11% organic revenue growth and 16% expansion in growth markets. GE Capital grew by 27% excluding the impact of the Garanti gain. Real Estate turned positive in the quarter, which is a positive sign for the year, and we ended the quarter with lots of cash and strong cash flow. Our Tier 1 common ratio is 10.4%, a very healthy level. And we remain on track to hit our margin target for the year. So everything we saw in the first quarter supports double-digit earnings growth. Orders were robust off a very high base. Orders growth was broad-based. Equipment was up 29%, Service was up 11%, emerging markets grew by 24% and organic orders growth was up 14%. We're benefiting from several macro themes: global infrastructure investment, healthcare access, gas conversion and favorable transportation and energy markets. Over the last 2 years, we redeployed capital from NBC to Oil & Gas. This is paying off with a 64% growth in Oil & Gas orders. Orders pricing was positive, which is a great sign for the future. This is the highest first quarter orders in history. It feels like we're outpacing the market gaining share, and backlog ended at $201 billion, another record. As I said, organic revenue growth…

Thanks, Jeff. I'm going to start with the first quarter summary. As you can see, we had continuing operations revenues of $35.2 billion and that was reported down 8%. This is the last quarter we're going to have to compare to the impact from NBCU. So last year in the first quarter, we owned NBC for one month and we had that revenue and we had the $3.6 billion pretax gain from the sale. So if you adjust for NBC in the first quarter of last year, that would give you a 4% growth on the $35 billion of revenue. Industrial sales of $23.7 billion are up 7%. I think a better reflection of our growth is down on the right side of the chart. Without any impact from NBCU, you can see the Industrial segment revenues were up 14%. GE Capital revenues of $11.4 billion were down 12%. If you look at Q1 last year, we had the Garanti bank sale that was recorded in GE Capital. If you exclude the impact of Garanti last year, GE Capital revenues were down about 7% in line with the overall asset shrinkage. Operating earnings at $3.6 billion were up 1%. Operating earnings per share of $0.34 were up 3%. And continuing earnings per share includes the impact of the nonoperating pension. And net earnings per share includes the impact of discontinued operations, reflecting the $0.02 charge this year, which I'll cover on the next page. Cash of $2.1 billion for the quarter was very strong as Jeff covered. On taxes, the consolidated rate for the first quarter was 16%. That was down slightly from 2011 excluding the impact of the high tax and NBCU gain. If you look at the pieces, the GE rate of 23% was 1 point higher than…

Great, Keith. Thanks. Just to reflect on the 2012 operating framework. We really have no change to the 2012 operating framework. We still see a solid double-digit growth in both Industrial and GE Capital. If anything, progress in Commercial Real Estate, Energy and Healthcare make us even more confident. We will continue to do restructuring to lower our costs. Our CFOA and revenues are better than our expectations in the first quarter. The year is progressing the way we thought in December. And again, we're confident in our operating framework for the year. To summarize, I'd just make several points. Our markets continue to be attractive. Investments have accelerated our organic growth and lead to a strong competitive position. Margin improvements will accelerate through the year. Healthcare and Transportation margin growth has begun. I'm encouraged by the orders pricing trend, and again, margins are important for the GE team. The GE Capital is very strong. The turn of Commercial Real Estate's important and makes us feel positive about the balance of 2012. Our cash flow was solid. Our plan is to resume the GE Capital dividend subject to Fed review, and our capital allocation will be balanced and investor-friendly. We don't take the environment for granted. We continue to be vigilant in risk management in a volatile world. And we have strong liquidity, and we're prepared for a variety of different outcomes. And finally, I think we're very well positioned again for double-digit earnings growth in both Industrial and GE Capital. So with that, Trevor, let me turn it back over to you, and let's take some questions.

Great. Thanks, Jeff. Thanks, Keith. Chanel, why don't we turn over to our questions? Let's go through them.

[Operator Instructions] Our first question comes from Scott Davis from Barclays.

Maybe, Jeff, just to start off, if you could give us a little bit of a sense on how you expect the margin ramp through the year. And I know it may be hard to quantify it exactly, but you're starting off in a little bit of a hole in Energy Infrastructure to get your 50 bps for the year. I mean how do you kind of see the rest of the year playing out?

So Scott, I'd first say that the first quarter is typically the low quarter. We've seen expansion over the last 5 years anywhere from 80 to 200 basis points on the total year. I think what you're going to see in the rest of the year is a positive value gap. You're going to see a reduction in R&D spending as a percentage of the total, improved acquisition performance in the run rate and I would say the impact of restructuring and productivity programs. So I would see as the year goes on, Healthcare, Transportation, solidly growing margin rates through the year. Aviation, we're expecting Aviation to be up 50 basis points on the year. Again, we had some unusual -- unusually high R&D in Q1. And then on Energy, I always break down Energy in the subcomponents. I think Service margins will be up. I think Oil & Gas has a good shot to have positive operating profit leverage on the year. I think Equipment margins will be down. And I think in the -- our gas turbine equipment margins will be down based on what's on the backlog. And I'd say wind is just a wildcard given how much volume could actually take place in 2012 just based on the strength of the market. So what I would say, Scott, is our costs are on plan. Our pricing performance is on plan. We've got lots of activities going to increase margins as the year goes on. And that's kind of how I -- what I don't always control is the amount of revenue that any one individual product's having, but we've tried to build in a little bit of buffer for negative mix, and that's kind of how I handicap the year. So I would say Aviation up, Transportation up, Healthcare up. Energy could swing anywhere from up slightly to down slightly. And that's kind of the plan for the year. But the execution, the underlying execution, is happening about the way we thought and the orders pricing and the pricing on new commitments, I think, bodes well for the rest of '12 and '13. So that's the way I would triangulate.

Okay, that's helpful. And Jeff, as a follow-up, your old business, Healthcare, I mean I was -- I mean, I think there was a lot of concerns in the quarter that Europe could really fall apart. And it didn't really. I mean you're only down 4%. I mean what -- how do you look at or how do you think about that business for the rest of the year, particularly in Europe?

Scott, I think it's a great question. I think Europe is -- we had planned on a tough year in Europe in Healthcare, and it's kind of coming in to be about what we had thought. I'd say the U.S. activity is a little bit better than we thought. And then there's places we don't talk a lot about like Japan, which -- where the Healthcare market is very strong, both on a relative basis compared to last year and also in total. So I saw probably -- we probably saw higher orders activity in Q1 than we expected and I would say in general, not just in Healthcare in Europe but in general, it's kind of hanging in there per our expectations.

Yes, Scott. One interesting point about Europe for Healthcare is that Germany, the Netherlands, the U.K. and the Nordic had pretty good orders performance, and Southern Europe is in a lot tougher shape. So there's a real split going on there in terms of the economic activity. That helped us a bit.

Our next question comes from the line of Steve Tusa from JPMorgan. Charles Stephen Tusa - JP Morgan Chase & Co, Research Division: Sorry if you already answered this, but the down, I guess, on the gas turbine order side, first of all, it was -- I think what you said it was down from last year, but also the price there was only down 1%, I think, is what you said. How do we think about that trajectory on both those dynamic -- on both those data points throughout the course of the year?

Well, first of all, on the volume side, we've said that we expect to deliver about 137 gas turbines this year, so that'll be up. There's no change to that outlook. We're seeing some good discussions globally for equipment volume and so I think from a volume perspective, we have a pretty good outlook and consistent with our framework. From a pricing, this is really encouraging, I would say. If you look at thermal last year, it was down 6% in the first quarter, 10% in the second quarter, 7.5%, 12.5% in the fourth quarter. To go to 1.1% down and to be positive including the Service business, I think that shows that we've been saying that the discussions around commitments on gas turbines have been healthy, that pricing was stabilizing, and so it's the start of a turn for us and I am reasonably encouraged by it. Charles Stephen Tusa - JP Morgan Chase & Co, Research Division: So there's nothing unusual. You think you can get to -- I mean if it's down 1% today and environment is still getting better, you think you can get to positive at some point this year?

Well, we've said I think down in the Analyst Meeting, we talked about by the end of the year showing a single positive and we're hoping that, that can be what happens with us. We've got pretty good discussions going on commercially with customers. There's still an overhang of supply versus demand. But globally, there's order activity. We're going to have a good volume growth this year. And this first quarter is indicative of where pricing is in the commitment world and where it's going, we think.

I think commitments are positive, Steve. That's usually a pretty good indication. And my hunch by this is going to bode well or should bode well for '13. Think about just the gas turbine margins. So I don't see any change to that. And to Keith's point earlier, I think we see a lot of activity on gas turbine demand, let's say, in a lot of different parts of the world. Charles Stephen Tusa - JP Morgan Chase & Co, Research Division: Right. And then just on the GE Capital front, you guys talked about -- I don't know if that was a change in language, talking about return of capital throughout 2012 as opposed to by the end of 2012. Is there a potential for maybe some more measured return of capital but through several time periods throughout the course of the year? Is there -- is that a purposeful change in language, or how do we read that?

I don't think there's any purposeful change there. Our intent is to have a dividend as a percent of GE Capital's earnings that we pay to the parent. And we -- our overall objective is to return excess capital above the capital levels required by the regulatory standards and all the stress tests back to the parent as well. So there's no real change on that. We're working constructively with the regulator. We've got a ton of activity going on with them, and they're working very professionally with us. And so our objective is unchanged. And as soon as we get news, we'll give it to you.

Your next question comes from the line of Jeff Sprague, Vertical Research.

Just a little more color on price in gas turbines, if we could. Are all those price -- order price numbers you're giving year-over-year changes?

Yes.

They are -- they're not sequential. And then I'm just also just wondering, Keith, as you noted, things are clearly look like they're getting better but your 7, 8, 9 quarters of negative price. As your sales price caught up -- sales price in revenue caught up with your order price, can you give us some color on what gas turbine pricing and deliveries was in the quarter?

Well, sure. We're working through that backlog. Overall sales price in the quarter for the whole company was 0.6% positive on the Industrial side. For Energy Infrastructure, it was 0.4% negative. For thermal, it was down 2.5%. For renewables, it was down 4%. So we are eating through that backlog that we've got. But overall, for the company, including the strength in Aviation, the strength in Transportation, the strength in Oil & Gas, pretty good on pricing overall. But we're going to work our way through that backlog this year.

I'd say the other piece of that, Jeff, is the value gap is positive in the quarter, which is a little bit better than planned. So we're seeing a little bit of break on commodity pricing, which is good and that's, I think, bodes well for margins in the rest of the year.

And on wind, those 200 units in Q1, is that additional units relative to what you expected for the year or is that just some shift between the quarters?

From Q2, we saw tremendous orders in wind. I think we're going to have a very good year in wind this year. The U.S. market is very robust, as you know. The production tax credits end by the end of the year, and we're taking a really good share in the marketplace and we're going to have a terrific performance. So they had some additional units versus what we thought in the first quarter. But so far, it's from second quarter.

But, Jeff, wind could run hot for the year, I think. It's just we've got a good product, our market shares are high and there's a ton of activity there right now.

And then just finally, on the Irish ops that went to disc. ops, do you guys have any guarantees or make-goods or anything attached to that where we might be concerned about some kind of discontinued tail on that?

We do not. That will be a complete exit.

Your next question comes from the line of Steve Winoker, Sanford Bernstein. Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division: Just first question on GE Capital. Just looking at, I guess, the reserve ratios on Page 9 of the supplemental, can you just give a little color on how you were thinking about -- I guess, they've come down to 1.99% sequentially from last quarter to 2.1%. So just the steady trend down, improvement in the environment, how you're thinking about that on a provisioning and reserve basis.

Well, I think we continue to see stabilization across on the financing receivables side and with loss provisions and write-off stabilization across almost all the portfolios of GE Capital. So I would expect you're going to continue to see a little bit of a decline as we work our way through the write-offs for existing provided losses. But the new provisions that we're laying on today are representative of pretty good run rate, I would say, a very healthy run rate based on a good backdrop. The main change that we've seen is the decline in the marks and the write-offs in the equity book in Real Estate, specifically. So the run rates for new provisions for financing receivables are pretty good rates and at historically low levels, I would say, Steve. Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division: Okay. So we're pretty close to what you expect for a run rate reserve ratio?

On the provision for losses. We're going to continue to have the write-offs on prior provided losses that will probably be a little higher than new provisions. Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division: Okay. And then on that real estate point you mentioned, I guess there was -- you said $0.5 billion for 56 transactions or I think it was 50 -- sorry, $56 million, right? Was that -- did I hear that correctly for profit?

That's right. We had a gain. We sold about $500 million, a little over 100 properties. $500 million of fair market value for a $56 million after-tax gain. Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division: Does that mean -- so it would have been, I guess, 0 -- net-net 0 on segment profit roughly for the quarter without those. Is the debt business getting better, too?

The debt business made money. The debt business made about $30 million after tax in the quarter. Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division: Okay, all right, great. And then just a question on the Industrial...

How much -- hold on, I'm sorry. 86? Sorry, the debt business made $86 million. The debt business had a pretty good quarter and we lost some money on the equity business. Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division: Great. So I think you guys covered the whole Energy pricing pretty well. Just let me -- on the Aviation side, I know you mentioned you've got higher R&D driving it, but could you provide a little color on that margin degradation? Was it all that? Was some -- to what extent is pricing a factor there? Are you seeing any degradation in pricing spares, things like that?

Sure. Pricing was pretty good. Overall, the margins were down in the quarter of 170 basis points in Aviation. Positive value gap was a full point. We had positive price and then we had negative mix basically. We had a lot more Equipment revenue than Services revenue as we continued to deliver a lot of commercial activity. And then we had about $50 million from higher R&D investment. And as Jeff said, that's going to abate through the year. We're kind of at the run rate. And if you compare to last year, we already had reached that run rate in the second half in Aviation. So that won't be a drag going forward that you saw in the first quarter, but pricing continues to be very strong in both spares and equipment in Aviation. Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division: Right. And that mix, you anticipate continuing to be negative for the rest of the year, but no worse or...

Well, we're going to ship a lot of equipment. We've got a big backlog and Boeing and Airbus have increased their run rates, and we've got a good share position. So we're going to ship a lot of equipment. But what we'd like to see through the year, as Jeff said, is the spares to grow a little bit as a percent of the total as we go through the year. Spares is -- as we said, the orders were down a little bit. The shipments were down about 2% in the quarter, and our expectation is that those will grow relative to last year as we go through the year. So that should get a little better as we go through the year for Aviation. Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division: Right. And given your mix of orders that you're talking about on that, does that mean when I look at that backlog not changing from 2011 year end to first quarter on that second or third slide, should we expect sort of a stable backlog or you expect that to start coming up now a little bit more strongly in the following quarters on equipment?

Well, we'll have to see. I don't really have a forecast of orders versus the deliveries on the total. I don't really forecast the backlog. We've got good, good global growth. We've got good equipment growth that we've had. As you know, the Aviation orders can be little lumpy, but we've got a tremendous backlog. We're in great shape here. I don't think that's going to be an issue for us as we go through the year.

Our next question comes from Julian Mitchell from Crédit Suisse. Julian Mitchell - Crédit Suisse AG, Research Division: I guess on Energy, the equipment side, I guess, has been sort of fairly well discussed. I mean in terms of the aftermarket in Service and Energy, the growth rate on service orders was about the same year-on-year as it was in Q4. If you look at the U.S. market, the electricity produced by gas-powered equipment is up year-on-year even though overall electricity demand is down. So I guess are you seeing any kind of effect from that in terms of driving aftermarket business for gas turbines in the U.S. or is it going to be something like nuclear in Japan where there are a lot of hopes that, that would spur a nuclear service boom, which for some reason even though there was a nuclear accident, that never actually happened?

We had a pretty good activity in gas turbines in Japan. Look, I think it's all good. When you look at the power plants that are running in the U.S. and the proportion of the power that's being generated from gas and how that's increased, that's a good news item for us. A lot of the outages for these customers are scheduled a year or more in advance. So those are kind of in place. But the fact that these gas turbines are running and they're running more and they're being dispatched, the rates that they're being dispatched is all good. I think it's going to be positive into '13 and '14 and beyond. We're not seeing a short-term pickup right now in PGS from that because most of the stuff, as we said, is scheduled, but this is all good news. Julian Mitchell - Crédit Suisse AG, Research Division: Okay. But your service order growth rates in Energy theoretically should accelerate from the 6% or 7% recent run rate?

Well, I think over time, you're going to get the benefit of the dispatching that we're seeing, absolutely. But again, these are long-cycle assets and I think you're going to see that over time. I don't think you're going to see that as a April, May pickup just because they're dispatching the way they are. I think they're going to run these and they're going to burn a lot of metal parts, and it's going to be good long term for us. Julian Mitchell - Crédit Suisse AG, Research Division: Okay. And then just a follow-up on Aviation. Some discussion around the mix of OE and service. I guess it was my understanding that GEnx shipments in Q1 were fairly light and so does that not mean that you have a very steep sequential ramp of GEnx shipments through the year and that's going to weigh on your Aviation margins even in subsequent quarters?

Yes, I think if you look at the total year, we're in decent shape. We had a pretty good run rate at GEnxs in the second half. In the second quarter, we are going to ramp up. We shipped 13 units in the first quarter of '12. That was about flat to last year. For the second quarter, we're going to be up to 25 to 30 units. And last year, in the second quarter, we had 4. But when you get to the second half, if we're shipping 25 to 30 units in the third and fourth quarter, that's about the run rate we had last year. That's why I think that's going to be helpful as you look at the Aviation margin impact going into the second half.

GEnx continues to come down the learning curve. And like Keith said, we had $50 million more in R&D in Q1 versus last year and that normalizes as well. So I'd say Aviation is -- there's always puts and takes with any one of our businesses, but it's about where we thought we'd be.

Our next question comes from the line of Nigel Coe, Morgan Stanley.

Yes. So the sale of the Irish business, what does that tell us about the risk appetite of the buyers in the financial world? I can't imagine it was a particularly easy business to sell. Does this raise probability of seeing some sort of exits on some of these red line assets?

Well, we'll see. I think, for us, it was just sort of a -- when you do have a chance to take a look at a portfolio that had the dynamics this one had and you get a buyer and we came to the point where you got, we think, a good economic return for shareholders, we'll pursue it. There's not a lot of other parts of the portfolio that are like that. But as you say, as liquidity has come back into the market, this is a particularly challenging one and it was a unique buyer, I would say. But there are signs of improved liquidity across a lot of our asset classes. And you see the valuation improvements that we see in real estate. We will pursue opportunities as the bid and the ask gaps close here.

Okay. And what were the operating losses for that business? I mean I'm sure it wasn't $0.02 a quarter.

Last year, we lost about $150 million after tax. Yes, we expected it to improve some this year, but we'll see.

Okay, and then switching to Industrial. Again, going back to the gas market in the U.S. Do you have a sense on where the utilization rates for your turbines are right now because there's been a 5-point mix shift year-over-year in gas production. And do you think -- I mean, obviously, the service benefits is clear down the road. But with the high utilization, does that spur orders quicker than maybe you might have thought in 2012?

You mean, Nigel, orders for new units?

Exactly.

Yes, look, I think just macro, the good news is almost everywhere in the world people are moving to gas. So the macro is -- the macro scene is very good. Our products are being used at a higher level. That should bode well for Services not just this year, but next. And again, I think when does the next U.S. heavy equipment order start? It's still hard to tell. But just given growth in electricity and reserve rates and stuff like -- reserve margins and stuff like that, it will come and it's going to be gas. And I think that's the...

All roads lead to gas, Jeff.

That's the bottom line I would give you. I would say China, the penetration of gas in China is growing. The penetration of gas in Japan is growing. The penetration of gas everywhere else in the world is growing, so -- and that we have relatively high market share there. We think every aspect I could give you is encouraging for the long term. I just -- I can't predict if it's going to be second quarter or third quarter, but it's coming.

I think one point on the thermal business that's helpful, we've diversified the business so much today that the thermal contribution from a profit perspective is less than 10% of the total profit on the Energy Infrastructure business. So the upside is in the front of us here.

Yes.

Okay, and then just one more. We've seen Mitsubishi selling a couple of J-Series turbines and I think Siemens got an H-series last month. What is your strategy with your H Frame turbine? It seems that you talk a lot about the FlexEfficiency turbine, but the H-series seems to -- you don't seem to talk much about that. But what sort of demand do you see out there for your H Frame?

We're going to have a big block in the next few years, and I think we'll be able to cover all of those areas I think. And a lot of our customers like the Flex. We still think that's a good place to own, but we'll also have a big block.

Your next question comes from the line of Terry Darling, Goldman Sachs.

I guess listening to all the comment on GE Capital and the lower tax rate, I guess I'm wondering why the operating framework for GE Capital hasn't moved up here. What's holding you back or what are you still concerned about there, relative to you had a very strong 1Q and kind of the lower delinquency trends and all the other trends you see out there?

Okay, I think we have to see how the year plays out. It's a pretty good quarter. I think you're right. We've got some positives. I think tax is a positive. I think Commercial Real Estate is off to a good start. It's a positive. I think, if you look, we're cautious on Europe. I think so far, so good, but we're cautious on it. I think low natural gas prices, we're cautious on that in the Energy Financial Services portfolio. But overall, these guys are off to a good start and the outlook in the marketplace is pretty good.

Terry, double plus is double plus. We're not trying to be cute, but it's a good year. There's nothing in the first quarter that makes us discouraged about how GE Capital should perform this year.

Okay, and then Keith, for the good and welfare, any items you want to call out with regards to comps or any other items in the second quarter that we all just ought to be refreshed on?

Well, there's nothing on 2012 that I'm aware of. If you go -- I think one thing I mentioned we're going to have more GEnx shipments, but we mentioned that. That's in Aviation. I think if you look at last year's Other Items page, we'll have to see how we compare to some of those things. There were small gains in Aviation that don't repeat and a gain in corporate. But there's nothing significant in 2012 that I'm aware of right now.

Okay, and then I appreciate it's -- we're not going to get things nailed down here from you on Fed timing, but I'm wondering if you can explain it. It has taken longer than initially expected that was -- the decks were cleared on that point last quarter. Since the last quarter, has the process proceeded at a similar pace as what you had seen before? Has it been slower? Has it been faster? Any color there at all for us?

Well, yes, I'd say it's proceeding at a similar pace. I can tell you that both the GE Capital team and the team from the Fed are working incredibly hard. You have to appreciate how much work the Fed has to go through here to try and learn a business as global and as diverse as GE Capital in the time frame that they really just started. And I think they're working incredibly hard and incredibly professionally and we are, too. And I think the process proceeded in the first quarter the same way it was going at the end of the year, and we continue to make progress together.

Okay, and then maybe just lastly. Jeff, on bolt-on acquisitions, it's been a little quiet here of late. Can you update us on what's in the pipeline and potential for some smaller bolt-ons here through the course of 2012?

Terry, we may do some smaller bolt-ons, but we got a lot on our plate. I really want to get all the Energy acquisitions nailed. I just don't want to do a big deal this year. I just -- again, we never say never, but I just don't want to do a big deal this year. I really -- we've got 11% organic growth, 20% orders growth. We got gain right now and I think our focus is on good execution and delivering big backlogs, and that's really the focus of the leadership team.

Your next question comes from Christopher Glynn of Oppenheimer. Christopher Glynn - Oppenheimer & Co. Inc., Research Division: On the 11% Industrial organic growth does fare pretty when well against guidance. Would you expect that's a high watermark for the year or maybe just offer some color on how you see backlog flowing through during the year.

My hunch is that we don't have any plans to continue at that rate for the year. I think, Chris, we said 5% to 10% in the December meeting. I think we're going to be safely in that range. And again, we just see pretty good -- big backlogs, big orders and we're in some good places right now, so I think that's -- but 11% is high. Christopher Glynn - Oppenheimer & Co. Inc., Research Division: Got you. And then on the second quarter review of European CRE portfolio review, do you have a taste you could offer on the outcomes you might be anticipating? It's in the context of overall valuation improvement.

We'll have to see. We've continued to mark our equity book where we have values that put the cash flows at less than our current book value. So I think we've got a pretty good mark on it today. But you'll have to see how the assumptions play out. Overall, we feel pretty good about Real Estate. I think we're going to be cautious. Look, we got about $8 billion of equity in real estate in Europe. So we have to go through the valuation review, take it incredibly seriously. But I think overall, you feel good about the dynamics globally.

Your next question comes from the line of Deane Dray of Citigroup.

Hey, on the Moody's recent recalibration of their methodology for rating finance companies, have you seen any change in your funding costs?

We haven't really. We've tracked it obviously from the day we were put on notice on the day that the action was taken. Our spreads continue to trade relative to banks who are higher rated and banks who are lower rated than us right in line. And over the last 10 days -- the first couple of days we saw an increase in spreads in line sort of with the market and then the last 10 days we've seen a compression of the spreads back again. I mean, overall, as you know, all the actions that we've taken in GE Capital to strengthen liquidity, lower the short-term funding risk, raise the capital, improve the risk profile of the portfolio, I think those have been pretty well recognized by the market. And the fact that the Moody's methodology just has a fundamental change in how they feel about fincos and ultimately they're going to do the same thing on banks as you've read a lot about recently. I think that the market is looking at what is the core business and underlying strength of the cash flows and the protection for the bondholders of the business. I think the actions that we've taken at GE Capital have been recognized by the market and have helped us to perform through a period where we were downgraded.

Yes, and we agree when we looked at how the bonds initially acted at the time of the announcement, it was very minor. It was like maybe between 5 and 10 basis points and then that seems to have tightened subsequently, so it's fair to say that was a non-event.

We agree.

And then over on the resumption of the dividend from Capital to the parent, one of the scenarios we were talking about in December was the idea that you could be in a position to make that dividend retroactive going back to January. Is that still a possibility, or how are you looking at that today?

Look, our objective is to have a dividend of a percentage of GE Capital's earnings that's equivalent to what we pay to our investors on the overall company stock and it would be for the year. And the timing of the reviews and everything that we have shouldn't change that. But again, we're going to have to wait until we get feedback and information from the Fed on that. Our objective hasn't changed. Our objective was to pay a 45% dividend on GE Capital's earnings for the entire year and to return excess capital above the regulatory standards including the stress cases. And it's something that, over several years, we feel really good about, the excess capital we have in financial service. But again, we got to work through this exercise, and we're doing it constructively and professionally. And as you saw the results in GE Capital in the first quarter, it continued to strengthen, so we have to see how that all goes.

And what's the expectation on the stress test? And talk a bit about the preparation that you're going through.

Well, we do our own stress cases a couple times a year and we're not publicizing those results. But you can expect that an enterprise like GE Capital would go through exercises similar to what you saw other large financial institutions go through, but we do it in our own way with the Fed sort of uniquely as opposed to being part and lumped together with the bank. So we're doing a lot of work. We have stress cases. We have portfolio reviews. We have reserve reviews. We have all the things that you'd expect a financial institution to have, and just we're doing it one-on-one with the Fed and it won't be disclosed.

Our next question comes from Shannon O'Callaghan from Nomura.

So I'm trying to figure out if we should be expecting ENI to go lower at GE Capital? I mean it's -- the problem with Real Estate getting so good now is I mean you had Real Estate turned positive in the quarter, you got the GE Capital tax rate going down 5 points with Industrial staying about where it was and you had capital like 50% of earnings. I'm trying to figure out how we get -- it doesn't seem like anything's getting worse at Capital. Everything's getting better. So how do we get that percentage down if we're not sort of doing I guess some larger asset exits?

Look, I would always say that the GE Capital's percentage of earnings in the first quarter are always high and we haven't changed our long-term outlook on where we want the split to be. And then again, we continue to execute on a plan that would get us lower than where we finished the first quarter in ENI, and we see opportunities to do that by exiting red assets and we still have opportunities there, and that's what I would expect. But at the same time, look, our net interest margin is growing. Our returns on new business, our ROI on new business was higher in the first quarter than it was in the fourth quarter. So there's lots of other elements in the business that are good even as we shrink ENI.

I think it's a good point on -- it's one other point on ENI. When you look at the total year, we are continuing to shrink, so that is one of the things that does reduce earning assets, obviously, and earnings. And on tax, I don't think it's a straight 5 points. I think it's a couple of points in the range of what we had as mid-teens to around 10. And there's a lot of uncertainty to that, as you know, when you get to the end of the year. So that obviously is another item that could move as you go into the end of 2012 and into 2013.

Okay. Yes, I understand the point of the seasonality with some Industrial stuff stronger later in the year. But in terms of the ENI, I mean does 425 still feel like the right number or...

No, Shannon, again I think that's kind of the -- again, these are big numbers. They're always hard to predict to a single point. My preference and the way we're trying to run the place is to get to 425 by the end of the year.

Okay, and then just on the capital allocation, can you just fill out, I guess, this investor-friendly comment a little bit in terms of when you do or assuming you do and when you do get the dividend back from Capital, I mean is buyback still sort of the priority use? I mean how should we -- maybe just frame some thoughts around how you think about ramping that once you get the green light.

Again, this is something that we'll go through with the board when that takes place. But I would say we love growing the dividend in line with earnings. We think that's great. We do -- we might do a few smaller bolt-on acquisitions in businesses we're already in. And if we get the opportunity, we'd still like to do buyback. So I think there'll be some mixture, but we certainly think buybacks are attractive to our investors and that's what it means to be investor-friendly.

Okay. So it's sort of balanced buyback acquisitions?

Again, I hate to predict anything. But I think we believe that buybacks are investor-friendly. But I always go back to dividends, small bolt-on acquisitions and buybacks. We'll pull all 3 levers, I think, as we have surplus cash.

Our next question comes from the line of Jason Feldman.

First, Jeff, I think you mentioned earlier when discussing orders that you thought you were gaining share in certain markets and feeling pretty good about that. Can you elaborate on where you see the most substantial market share gains?

We never know those numbers kind of ahead of time, so each industry has its own cadence. It's just -- it's a high level versus what anybody would predict for the industries we're in. So I think we need to kind of see NEMA data and other stuff as we go through the close of the quarter and get a chance to look at some of our competitors' results.

Okay. And then lastly, can you give us an update on the 737 MAX program and the engine development, how it's going there? I think there have been some concerns about how that was going given the size constraints on the 737, whether you'd be able to have an engine that was competitive enough with the A320neo.

Yes -- no, I think we like where we are. We see some additional fuel burn opportunities that we want to execute on. I just was reviewing the program a couple weeks ago out in Cincinnati. I think we've been able to take a lot of technology off the GEnx and put it into LEAP. I'd say if you sat back and said you got the 737 MAX, you've got the C919 and our share of the A320neo is probably greater than 50%. We like how the engine's positioned, and so we feel pretty good about both the technology and the commercial process on that particular -- on the narrow-body space.

Our next question comes from the line of Brian Langenberg of Langenberg & Company. Brian K. Langenberg - Langenberg & Company, LLC: Just 2 questions, talk about Energy and Healthcare. First, on Energy, great news on the pricing. It almost defies logic not in terms of the direction and what we're looking for, being bullish on your stock, but just how quickly. How much of this is customers? And talk a little bit by region going, hey, we do need this capacity. We may have to back off a little bit to get a deal signed and how much of this, if any, is your teams being a little bit more selective and saying there's just some business that maybe we let somebody else win? And then I have a brief question on Healthcare.

Look, I don't think -- we're trying to compete globally everywhere, Brian, and we're -- we've got good strong competitors, especially in that thermal space. And we've got a great product in the Flex 50. We've got a great product in our heavy-duty gas turbine product line. And so we're not -- I don't think anybody's backing off anywhere. I think we're competing globally. I think one of the things that you may see relative to the historic trend is you ended up with some higher-priced capacity that's had price erosion over the last 12 to 18 months, and now we're getting to kind of a market-clearing price level. So it's not so much either walking away or supply and demand has tightened dramatically. I think you've really just had the pricing get to a level where it's probably more realistic for the main competitors in the marketplace based on the demand we see. I hope that helps a little bit. Brian K. Langenberg - Langenberg & Company, LLC: It does. Sounds a little bit like new normal. Then on the Healthcare side, certainly some decent performance there, especially with all the noise that's going on. Did you -- have you observed or did your team there observe any kind of a change in texture as the healthcare reform is going to the Supreme Court argument? Anything you guys saw blip-wise up or down in terms of marginal propensity to buy it through the quarter or your conversations now?

Really none. Again, I think the U.S. seems to have normalized. My hunch is the market's probably single digit -- low single digit up, that would be my expectation. And Brian, we really didn't see any change after the Supreme Court or anything like that. Very strong orders on the -- orders on Equipment were really strong in the U.S., as we said, up 15%, and that says that there's good technology and customers have capital and they need to continue to improve their capability. And so I think, overall, it was a very encouraging quarter. Brian K. Langenberg - Langenberg & Company, LLC: And that plus 15% was a fairly steady plus 15%? I mean...

We have -- if you want some products, CT was up 10, MRI was up 9, x-ray was up... Brian K. Langenberg - Langenberg & Company, LLC: No, I mean through the quarter. I'm sorry, Kevin, like through the quarter, like...

No real change. Really pretty steady.

And your next question comes from the line of Steve Tusa from JPMorgan. Charles Stephen Tusa - JP Morgan Chase & Co, Research Division: I don't know if the question was answered, but I guess I just wanted to get a little bit more info on this. Utilities continue to come out and talk about the high utilization of their plants from a gas perspective. How does that translate over the next 12 to 18 months from a Services perspective? Because it's kind of unclear to me. There's a lot of moving parts with which plants are being used, the starts and stops, whether that's more profitable for your Services business. Maybe you could just give a little bit of color on how that actually impacts the Services business at Energy.

What I would say, Steve, is if you look over, let's say, 18 months and as this performance continues, this should be good for our Energy Power Gen Services business because, again, they run them higher, they're going to consume more parts, things like that. Now this all gets balanced between who's got shutdowns, when are the shutdowns, where are they on a CSA. There's a whole bunch of -- there's like 10 other Xs that are in that equation, but the macro point is positive. That's why I don't think we're trying to be vague. It's just hard to call a quarter, but the macro trend is good. Charles Stephen Tusa - JP Morgan Chase & Co, Research Division: So was it something that can add -- instead of it growing 5% just on installed base, could it add a couple percentage points to the growth rate? I mean is it something that meaningful or is it, it all kind of blend in and kind of support the kind of mid-single-digit Services growth there?

I think what it could do is, over time, add to the growth rate. But again, I do believe that. So I just think it's just hard to predict exactly when. Charles Stephen Tusa - JP Morgan Chase & Co, Research Division: Well, it's certainly not going to hurt the growth rate.

Yes, exactly.

That's right.

Great, Chanel. I think we're wrapped up now, is that...

That is correct. There are no further questions.

Great. Well, thank you, everyone, for today. The replay of today's webcast will be available this afternoon on our website. We'll be distributing our quarterly supplemental data schedule for GE Capital later today. Just a few quick announcements regarding upcoming events. Next week, on Wednesday, is our 2012 Annual Shareholders Meeting in Detroit. Hope to see you there. On May 23, Jeff will be presenting at the 2012 EPG Conference. And then finally, our second quarter 2012 earnings webcast will be held on Friday, July 20. As always, we'll be available to take questions today. Thank you, everyone.

This concludes your conference call. Thank you for your participation today. You may now disconnect.