Good day, ladies and gentlemen, and welcome to the General Electric Third Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. My name is Ellen, 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.

Good morning and thanks for joining our third quarter earnings call. Today I'm joined by our Chairman and CEO, Jeff Immelt; and our CFO, Jeff Bornstein. Earlier today, we posted a press release, presentation, and supplemental on our Investor website at www.ge.com/investor. As a reminder, 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. As described in our SEC filings and on our website, those elements can change as the world changes. With that, I’ll turn it over to Jeff.

Thanks, Matt. GE had a good quarter in a slow growth environment. We continue to see challenges in the resource sector as customers adjust to a lower price environment. Globally growth continues but at a low level. There is sufficient opportunity out there to achieve our goals. At the same time we plan to control our costs even tighter as we navigate this environment. GE grew organically by 1% and EPS grew by 10%. Segment profit grew by 1% year-to-date ex-FX. Industrial margins were up 40 basis points again excluding foreign exchange. CFOA was $8 billion including $2.9 billion of industrial cash flow. We ended the quarter with $319 billion of backlog and we accomplished our financial goals despite the impact of $0.04 per share and foreign exchange headwinds year-to-date. We continue to execute our capital allocation plan. We have virtually completed our pivot and financial services with 193 billion of signings. Year-to-date we've returned $24.6 billion to investors through dividends and buyback. For the year we're increasing the buyback by $4 billion from $18 billion to $22 billion and total cash return to investors will be at least $30 billion for the year. We continue to invest in the company. In the quarter we announced investments in additive manufacturing, digital platforms and wind turbine supply chain. These will add to earnings in 2018 and position the company in fast growth markets in the future. Orders were $26.9 billion down 6%. Alstom orders were $5.2 billion and backlog is up $3.2 billion since the acquisition. Overall backlog is up 6% versus a year ago with service backlog up 11%. We had substantial strength in renewables, healthcare and power. Renewables grew by 59% including our first substantial offshore order at $600 million and $400 million order to repower the installed base.…

Thanks Jeff. I will start with the third quarter summary. Revenues of $29.3 billion up 4% in the quarter, industrial revenues were up 5% to $26.7 billion. You can see on the right side that industrial segments were up 4% reported and up 1% organic. Alstom revenue in the quarter was $3.2 billion. Industrial, operating plus verticals EPS was $0.32 in the quarter up 10%. The operating EPS number of $0.27 includes other continuing GE Capital activity including headquarter runoff and other exit-related items that I’ll cover on the GE Capital. Continuing EPS of $0.23 includes the impact of non-operating pension, the net EPS of $0.22 includes discontinued operations. Total disc-ops impact was a charge of $103 million in the quarter driven by GE Capital exit cost. As Jeff said we generated $18.3 billion of CFOA year-to-date up from $6.5 billion last year driven by increased dividends from GE Capital. Excluding deal taxes, industrial CFOA was $3.4 billion year-to-date down 45%. We generated $2.9 billion of industrial CFOA in the third quarter which was up 13% versus last year. This is driven primarily by working capital improvement in receivables and inventory. Progress collection was a usage in the quarter on lower order principally in Oil & Gas. Free cash flow was up 70% and free cash flow conversion was 93% in the quarter. Adjusted free cash flow conversion for the mismatch of gain income and cash which is included in other investing activities, free cash flow conversion would be 99%. Alstom generated 25 million of CFOA in the quarter. As Jeff said earlier we now expect GE capital dividends for the year of $20 billion versus the planned $18 billion. Fourth quarter will be another large industrial cash quarter on $5 billion of cash income and continued progress on working…

Thanks Jeff. Now let me punch through our operating metrics for 2016. We are nearing the EPS range to $1.48 to $1.52. In this number we're offsetting $0.46 of FX headwind. We expect organic growth to be positive but near the low end of the range. In our corporate cost control and margin execution remain very strong. Free cash flow plus dispositions will be above plan mainly due to GE Capital dividends. Although the cash metrics remain on track and we're increasing the buyback from $18 billion to $22 billion and this makes the total cash return to investors $30 billion for the year ahead of plan. So in a time of volatility the GE model is performing. Finally let me reflect on the company's earnings going forward. When we launched the capital repositioning in April of 2015 we established the goal of $2 EPS by 2018. Since then our outlook for Oil & Gas has worsened and foreign exchange serves most global companies and GE is no exception. At the same time the rest of GE is performing well and we see that continuing in the future. And we should be even better than our original plan for buyback and Alstom continues to perform at or above plan. Going forward we plan to drive out more cost and supply chain program spend around product launches and corporate. And we will continue to grow our funding on digital transformation. Incremental leverage exists with the idea of pushing beyond our goals. We'll give you our 2017 outlook in December but all of our metrics for compensation purposes will continue to be linked to $2 of EPS in 2018 are aligned with investors. Matt, back over to you for questions.

Thanks, Jeff. I'll now ask the operator to open the lines for questions.

[Operator Instructions] The first question is from Scott Davis with Barclays.

Hi, good morning, guys. Your final comments, Jeff, were interesting. I mean, A, you're not backing off the $2 number, which is a relief to some of us. But your comment about potentially stretching leverage, can you be a little bit more clear on what that means? Is there a comfort level around ratios that you have now that's increased versus maybe where you were before? Is there a comfort level around M&A and the stuff that's available? Just give us a little bit more there, please.

Yes, Scott really I didn’t mean to change at all the way we thought about leverage in the past. I think what I try to differentiate is the built-in toolboxes always assume that without leverage that we - the extent to which we do incremental buyback or M&A it should push about that point, so that was really the only context for the point on leverage.

Okay. So still a $2 plus-plus in using…

Yes, in other words we are trying to do the build, our intention is to not change the bridge the way we've articulated over the last couple of years.

Okay, okay; that's helpful. Then just as a quick follow-up, your Energy Connections is not a business I know very well, but the margin is pretty weak there. You said you're doing restructuring. What do you think a pro forma margin looks like in that business once you are done with your restructuring?

Well, here is what I say Scott is it's really three businesses and it starts with the Grid business which is combination of our Legacy Grid business and Alstom business. That business I think is or I think we think is performing actually quite well in around $64 million in the quarter, it's delivering on all the Alstom synergies that we talked about delivering. And then you have Power Conversion business which has a higher concentration in Oil & Gas historically than the balance of Energy Connections. That part of that of the Power Conversion businesses has been enormously challenged. We've replaced lot of that volume with renewables volume. The renewables volume was not as profitable as what we’re doing in Oil & Gas and so Power Conversion has been a challenge. We've been breakeven to lose a little bit of money here through the first three quarters. And then that leaves you with our legacy Industrial Solutions business which had a reasonably - a good orders quarter I mentioned earlier, up 6% on orders in the North American market that feels like it was down 4% but on execution and revenue in the quarter was less than what we expected it to deliver. That business ought to earn between $100 million and $140 million a year. The Power Conversion business until oil turns around I think it’s going to be a little bit of a challenge and we have a good outlook for our Grid business. So when we think about 2017 we expect the Energy Connections business to be a meaningful contributor to earnings growth where we move from this year to next.

[Operator Instructions] The next question is from Steve Tusa with JPMorgan.

Hi, guys; good morning. Just to be clear on the new profit guide for the fourth quarter - for the year, I think the Street's around $18 billion. I think backing into using your free cash flow guidance and backing into what that would imply for a profit guide for the fourth quarter, somewhere in the $6 billion to $6.5 billion range. Is that the right number?

I think that's about right. That's within a row of apple Steve, that what we're at strategically.

The next question comes from Julian Mitchell with Credit Suisse.

Hi, thank you very much. I just wanted to follow up on the components exactly behind the revenue growth guidance reduction. What proportion are coming from, say, Transport or Power? And then when you're thinking about the scope for recovery, timing and magnitude, how are you communicating on that in light of the weak ongoing order intake?

Well I think revenue is primarily Oil & Gas Julian, with maybe just a touch in some of the other ones but I would think about it in that context. And then again I would come back and talk through backlog growing, service backlog particularly strong as being a big driver of organic growth and the fact that kind of underlying Alstom orders that will play out in kind of '17 and beyond are actually quite strong as well. So I view orders as being kind of more or less in line with our expectations as a build-up for what we have to do in '17 and '18 and then Q4, I think we believe will be a pretty good orders quarter as well. I don’t know Jeff if you want to add to that?

Yes, let me address revenue. So when you think about the year we had 1% organic revenue in the third quarter. When you exclude Oil & Gas if you get back to the rest of the portfolio, in the third quarter our organic revenue grew 6%, on a third quarter year-to-date basis it grew 4% and we expect it to be really solid excellent gas, really solid organic revenue growth in the fourth quarter. So the 2 to 4, moving from 2% to 4% to 0% to 2% is mostly about where we think the revenue number is going to end up with Oil & Gas. Having said all of that, we've not changed our outlook on Oil & Gas our profit of the year ex-foreign exchange we still think plus or minus that's about 30% down.

The next question is from Jeff Sprague with Vertical Research Partners.

Thank you. Good morning, gentlemen. I just want to go, Jeff - either Jeff, really - to the extent that you can provide color on just how to think about the underpinnings of the bridge to 2018. What I mean by that is we're still at $1.50 midpoint for 2016, but we're now looking at segment OP of $1 billion lower. So we've got lower tax and other things going on, we see this change in goodwill at Alstom. I don't know if there's other moving parts. But can you give us any thoughts on the OP ramp in your business to 2018?

Why don’t I start and then Jeff you. So what I would say Jeff if you just context in 2016, I'd say headwind in Oil & Gas, headwind in foreign exchange in 2016. We think some of the foreign exchange actually comes back our way in ‘17 and ’18. We think Oil & Gas is going to continue as you look forward to be a drag. Our team is doing a really good job. We’re executing well. We’re taking cost out. But we’re not really forecasting a hockey-stick in Oil & Gas. The rest of the industrial portfolio really which grew 8% ex FX, I think it's well positioned to continue to drive good solid growth over the next few years. Alstom is on plan. We think the Alstom return still looks solid and the Alstom earnings outlook for ’17 and ’18 still looks solid. We're going to continue to execute on the buyback right. So those were the main - those are the main components. And then what I would add to that Jeff, is just a context of driving corporate cost lower, continuing to work hard on incremental opportunities on supply chain that we see and accelerating progress in gross margins. So I think the way you got to think about it is incremental intensity around cost that we see in our line of sight, sustained good growth in our industrial portfolio. Some of the FX headwind we've seen should come back to us over the next few years just by the way the contracts are written. Buyback at or ahead of plan and that realizes the context for an Oil & Gas business that we’re executing well but you know we’re trying to be a prudent about how we think about it over the next couple of years.

I would just add. When you think about that framework or initially put it together clearly Oil & Gas cycle is the single biggest challenge against that framework and we’re going to be much more aggressive around cost as a result of it. The rest of the portfolio I think is what as Jeff described it and we’re going to try to be a little bit better on buyback.

And I think the last point guys, I just would make a point that, the guidance range of 1.48 to 1.52 this year that's with us eating $0.04 to $0.06 a share of FX in that number right. So I think underlying execution in the context of where we are is still pretty strong this year.

The next question is from Andrew Kaplowitz from Citigroup.

Good morning, guys. Jeff, you talked last quarter about services order growth rising to the mid-single digits in the second half of the year, and organic orders did turn positive this quarter after being negative last quarter, but were still pretty low at plus 1%. Do you still see a sustainable mid single-digit growth in orders given continued weakness in Oil & Gas and Transportation? Is the real issue still just the timing of AGP orders? And what are the chances that AGP orders slip in the current environment?

So Andrew I’d say a couple of things. Firstly on AGPs, I think we feel reasonably confident about the guide that we've given you on 135 to 150 for the year. So I don't think that at the moment is a point of concern for us. We did talk about mid-to-high single-digit service orders in the second half of the year. We still see that in the fourth quarter. We see mid-to-high single-digit service orders organically. What's really changed versus what we said at the end of second quarter it has been around equipment and most of the change in equipment has been about Oil & Gas where we’re about 3 billion lower in Oil & Gas orders and that's really about three projects, it’s really three distinct projects that have been delayed or suspended has changed our outlook. And so equipment is going to be softer than what we said at the end of second quarter. I don't think there is any change to how we see service orders here.

Okay thanks.

The next question is from Steven Winoker with Bernstein.

Thanks and good morning, all. I just want to go back to Oil & Gas. Last December you guys had talked about more room in the $1 billion of cost-out, which was like $600 million in 2015, $400 million in 2016; and you thought you might be able to raise that $400 million to $800 million. Sounds like you've just said you are on track to that for this year. But as I start looking at this worsening environment, you say you're going to continue to be aggressive in costs. It starts to really raise the question for me of how much more you can do here, other than ongoing Lean and productivity in terms of real, major thinning out going forward to offset what are continuing really significant pressures. I know you've talked about it generally, but any more precision on that front as we look further than the fourth quarter would be helpful.

So, Steve, your math is exactly right. So we said, and I think I said 700 million to 800 million of incremental cost of this year on Oil & Gas to three quarters they delivered about 530 million of that. They will deliver all the actions to get to 800. We might not realize all 800, because some of those savings were volume related. In other words, if the volumes were not there you don’t actually get to hit the cost savings, although when the volume comes back in a lapse will be there. I think Lorenzo and the team would say, there are additional incremental cost actions we are going to continue to work into 2017. I think you're right. I think the depth of which you can continue to cut cost is somewhat limited, but there is still incremental additional actions that the team contain. I think our comment on more cost actions is generally is more of a statement across the entirety of the company given what's happened in Oil & Gas, around program cost, structure, corporate. There are more opportunities that we’re going to run to, to try to compensate for the fact that Oil & Gas is we expect going to earn less than what we originally thought when we gave it $2 framework 18 months ago.

I would - I think Jeff said it exactly right. And then you know what I would say Steve is look, the – our overall context for Oil & Gas hasn't changed. We still think it's a really good GE business, leverages the GE store and I have every confidence we’re going to come out of the cycle, a better than we win in. But I think, I would echo what Jeff said, I think we continue to see good opportunities in corporate. We also continue to see good opportunities around our footprint and supply chain. You know, we've had a chance now to look across the Alstom and GE kind of factory base and things like that and we see some incremental opportunities that we think are going allow us both up from sourcing standpoint and a supply-chain standpoint, and will be able to do that and still do the investments we need to make in digital as we go forward. So, I think that's the right context.

The next question is from Shannon O'Callaghan with UBS.

Morning, guys. On cash flow, progress collections I think you said was still a pressure. It would seem like that should be close to bottoming. What's that going to be this year, and where do you see that heading? And just any other metrics or dynamics you've been working on cash flow-wise in 2Q, just maybe give us an update.

Well, progress was a bit of a challenge in the third quarter for exploration. We definitely delivered better working capital performance in the third quarter, progress as a little bit a drag, that reflects equipment orders and that's largely where we thought Oil & Gas might be in third and fourth quarter where we are seeing now. Now. so have - two or three – as I mentioned earlier, two or three big orders Porsche, meaningfully - meaningful size, orders that would have brought a lot of cash with it. We’re down year-to-date. The fourth quarter will be better than the run rates through the first three quarters and we expect progress actually contribute in the fourth quarter to our CFOA performance that we talked about earlier.

Okay. Thanks.

The next question is from Andrew Obin with Bank of America Merrill Lynch.

Yes, good morning. Not going to ask you a question on Oil & Gas; just to shift a little bit to Predix. In your presentation you say that the number of partners has quadrupled on a sequential basis. Are there any revenue and profit implications from that going to next year? Because it does seem to be running quite a bit ahead of expectations.

I wouldn't change it yet. Andrew, we will talk more about this at Minds and Machines in a little while, but clearly on the partners side with Predix, I think we’re ahead of where we had envisioned, but we will update those numbers in the middle of November, when we when we go to mine machine.

But partners does have revenue implications, right? Because there --

Yes, no, seriously the - you know for instance, we partner with people. They immediately add developers and they have revenue goals, so we expect - we expect this to be a good boost to how we think about revenue over Predix over the both short and long-term.

Thank you.

Yes, I would just add. Listen, we had a goal here to sign 50 partners for over 200. That's really positive momentum both from a technology perspective and ultimately longer-term in terms of actually generating orders in revenue. We are way ahead on where we thought would be on people developing on Predix. Jeff said, all these metrics to be updated Minds + Machines, but I think there is reasonably good momentum here.

The next question is from Joe Ritchie with Goldman Sachs.

Thanks; good morning, everyone. I wanted to go back to Jeff's question from earlier. When I look at what you guys gave out in EPG, you had about 5% Industrial growth ex-Alstom coming through in the $2 earnings bridge. So we're running this year, call it down mid to high single digits. So have you guys updated that number? Is that number going to be running closer to 2% to 3% in that bridge? And then my second question really is around the buybacks. The buybacks are running ahead of schedule. I think you've done about $25 billion by the end of this year of the $35 billion. So is there upside to that number? Thank you.

So, we will update you on the bridge. Jeff will update you on the bridge when we get to EPG.

When we get into year-end.

Yes, I am sorry, the outlook meeting in December, we’ll go back to the bridge. We’ll go back through all three pieces that we've shared with you before. I don't think we see at the moment any real change from the Alstom. We may be a bit better on buyback accretion which is partially answered your second question. And we'll walk you through the dynamics in the organic portfolio growth over that period of time. So more detail to come on that. On buyback, I think we’re absolutely ahead of plan. I think the $4 billion incremental buyback year - in the year I think is important. As you know, we are constantly going back and evaluating our capital allocation plans, most of which we've shared with you on what makes sense, and to the extent it make sense to be more aggressive with buyback we will do that. On the leverage question, we’re mostly focused around M&A, so I wouldn't read through on that and leverage equals buyback. I think that we had in our capital allocation plan we had capital available for M&A, buybacks and other reasons and right now we’re being a little bit more aggressive in buyback.

Got it. Thank you.

The next question is from Deane Dray with RBC.

Thank you; good morning, everyone. Like to stay on that capital allocation theme, Jeff Bornstein, right where you finished off there. Because the plan had been to toggle between buybacks and M&A depending on the returns. Are you implying at all that there's fewer opportunities in M&A today versus the attractiveness in GE stock in terms of - increasing the buyback? And then also on M&A, maybe some additional color on the LM wind turbine blade acquisition. Is this the same derisking of the supply chain we saw in Avio? Maybe expand on that, why it gives you better strength in emerging markets.

Yes, so on the capital allocation question, we are not changing any way in terms of how we are thinking about to trade between M&A and buyback, and certainly with the stock is $28 to$29 the buyback looks quite attractive to us. We’re not short ideas on M&A I don't think. We're constantly evaluating M&A opportunities I think just what we announced recently here between SLM and Arcam which is an investment that’s going to huge payback longer-term and most recently the LM acquisition. We are continuing to evaluate M&A opportunities. So I wouldn't read too is we are short ideas on M&A, which is I think would like to be more aggressive around the stock given the outperformance by GE Capital in terms of what they are returning to us and operationally you know, what we’re able to do through our capital allocation model that was unrelated to M&A and leverage.

So I would just say Deane, I think Avio was the right way to think about LM. We see good opportunities in the supply chain. We think the next few years visibly we have on wind is pretty solid in terms of PTC and our global demand. We think between us and LM, we've got good technology that can really innovate in the industry and what we saw on Avio we are able to keep the non-GE base in Avio and we think we can do the same thing with LM. Lastly your question it really bolsters us in China and India and lot of the emerging markets where we see growth potential for us in the future. So we look at as a reasonably low risk investment where a lot of the leverage on our control and we have I think a disproportionate upside if we execute well.

Thank you.

And our final question comes from Nigel Coe with Morgan Stanley.

Thanks for fitting me in here, guys. Good morning. First of all, just a clarification on the buyback. The $4 billion extra this year, that's not a pullforward from next year? We're still looking at 14, 15 for next year. But my primary question is on the margin side. Obviously good news on gross margins, good news from price cost. But what's driving the SG&A inflation, because there's about 150 bps of higher SG&A? So if you can just address those two questions, thanks.

Okay. So first on a buyback let me be absolute. The $4 billion buyback is an increase of the model we gave you that went through 2018. That we are buying 4 billion more stock than we said we would when we gave you the plan through 2018. On SG&A so in the third quarter structural SG&A was up 1%, that was 12.6% of sales, third quarter year-to-date were actually down 4%, about 30% of sales. It was a bit of a drag in the quarter probably because SG&A was up 1% and volume was essentially down slightly on the calculation basis. So it ended up being about 10 basis point drag in the quarter. Other inflation that sits in the other line is associated with inflation on based cost, and most of that is EOP. There is other indirect expenses that also incur inflation and that's what you see on outline. Other inflation ex-FX, if you take out the impact of FX of some of those marks go through the other line in that walk with a negative 60 basis points as opposed to what we showed you in the morning.

Okay. That's helpful. Thanks.

Okay. Couple of quick announcements Jeff before you wrap up. The replay of today's call will be available this afternoon on our Investor website. We'll be holding the Minds and Machines conference in San Francisco on November 2016 and our annual outlook meeting on December 14. Again we will be holding our fourth quarter earnings call on January 20. Jeff?

Great, Matt. Thanks. Just a couple points to wrap up, I think we plan to have a solid Q4 and wrap up really solid 2016. Looking forward I think we are being realistic about the environment in the resource sector, Oil & Gas, but don't be mistaken we still I think this is a core GE business in one where our teams managing it extremely well through the cycle. The rest of GE is executing very well. Alstom remains on track in 2017 and 2018. The buybacks ahead of plan. We got a really good line of site to incrementally take more cost out of the company and be even more efficient. And all of our compensation plans whether it's long-term incentive plan or the AIP which is IC plan all tied to the bridge that we showed you in 2015 and where we march and 2016, 2017, 2018. So we are aligned with investors Matt and we're - I think we're quite confident in the performance of the company.

Great. Thank you for joining.

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