Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Executives

Trevor Schauenberg - Vice President of Corporate Investor Communications

Keith Sherin - Vice Chairman and Chief Financial Officer

Jeffrey Immelt - Executive Chairman, Chief Executive Officer and Member of Public Responsibilities Committee

Analysts

John Inch - BofA Merrill Lynch

Terry Darling - Goldman Sachs Group Inc.

Jason Feldman - UBS Investment Bank

Steven Winoker - Sanford C. Bernstein & Co., Inc.

Shannon O'Callaghan - Nomura Securities Co. Ltd.

C. Stephen Tusa - JP Morgan Chase & Co

Jeffrey Sprague - Citigroup

Julian Mitchell

Deane Dray - Citigroup Inc

General Electric (GE) Q2 2011 Earnings Call July 22, 2011 8:30 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the General Electric Second Quarter 2011 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.

Trevor Schauenberg

Thank you, Chanel. Good morning, and welcome, everyone. We're pleased to host today's second quarter 2011 earnings webcast. Regarding the materials for this webcast, we issued a press release early this morning and the presentation slides are available via the webcast. Slides are also available for download and printing 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; and our Vice Chairman and CFO, Keith Sherin.

Now I'd like to turn it over to our Chairman and CEO Jeff Immelt.

Jeffrey Immelt

Great, Trevor. Thanks. Good morning, everybody. Just to start off, the company had another strong quarter. Leading indicators are positive with infrastructure orders up 24%. I think that's a really good sign. Strength was broad based with expansion in many of our end-use markets.

Our global growth was especially strong. There remain a few sources of volatility, but they are well known. It's housing in the U.S. and the impact on appliances, the U.S. wind market and a slow European economy.

Earnings growth continues to rebound with operating EPS of 17%. Growth was pretty broad based including Aviation, Healthcare, Transportation, Oil & Gas and Capital. In fact, Capital continues to be very strong. Our earnings were up substantially. The only drag was Energy, which should improve in the second half of '11.

Our balance sheet was very strong with $91 billion of cash and a Tier 1 common ratio of 10.4%.

Lastly, we continue to make progress on our capital allocation plan with a big step in the third quarter as we retire the Berkshire preferred. In addition, we will likely close the Converteam acquisition in the quarter. So we're executing well, and we feel good about the quarter.

Orders were a real highlight. They were very strong, a big highlight, growing 24% with real strength in every segment. This actually comes off a good quarter in second quarter of '10 when orders also grew by 8%.

Organic orders growth was 17%, and Energy orders were particularly strong. We had some big wins: Renova in Brazil, Wheatstone in Australia and others. We recorded $27 billion of commitments at the Paris Air Show, most of which will turn into orders in subsequent periods. Our Healthcare orders in growth regions expanded by more than 20%. Transportation had outstanding global wins in mining, and we ended the quarter with a record high backlog of $189 billion.

Now, we've made investments and growth over the past couple of years, and they are paying off. We're seeing a great response to John Rice's leadership of our global growth organization. Global orders grew by 23% with growth markets up 21%. Every business had double-digit growth. Highlights included China, up 32%; India, up 91%; Australia, up 35%; Latin America, up 45%; Russia, up 23%; Africa, plus 35%; and Asia, up 22%. So global markets, industrially, remain a source of strength for GE.

Services remain strong with revenue growth up 14%, and we're seeing good growth across all the businesses and CSA backlog is in an all-time high at $139 billion.

New product launches are working. The LEAP-X is now a great success with the Boeing 737 re-engine partnership, an important strategic step. We're seeing broad customer interest in the new gas turbine Flex 50, which offers both record-high efficiency and grid flexibility. Our 1.6-megawatt wind turbine is gaining share in North America. And we have a broad array of product launches in Healthcare. And between now and year-end '12, we'll have a major launch in every appliance product. So based on this, we think our organic growth rate should accelerate in 2011 and 2012.

Cash remains on track. We remain on track to generate $12 billion to $13 billion of CFOA for the year. Working capital has grown by about $2 billion year-to-date to support our second half '11 equipment backlog. This will reduce by at least $1 billion as we end the year.

As I said earlier, we ended the quarter with a record $91 billion of cash, and as I mentioned earlier, we plan to retire the Berkshire preferred shares by the end of the third quarter. We remain committed to attractive dividend growth and reducing our share count over time.

Now margins declined in the quarter. The decline was primarily in Energy and really driven by significantly lower margins in the wind market. Also contributing to lower margins were heavier R&D spending and acquisitions. We expect margins to improve in the second half of 2011. And going forward, we'll been managing through several factors.

Our wind margins have declined substantially between 2010 and 2011, but will stabilize. We expect deflation and lower material costs to continue throughout 2011. We expect R&D investments, as a percentage of revenue, to be flat to lower in 2012 versus 2011. Service margin growth will continue. Acquisition integration is trending ahead of plan. And Energy equipment orders and pricing should improve by the end of next year.

So if I compare where we are today versus our December framework for 2011, we expect industrial revenue to be higher, we expect margins to be slightly lower and our expectation with industrial profit growth in 2011 is unchanged. Finally, we expect margins to expand in 2012 versus 2011.

So with that, let me turn over to Keith who's going to give us an update on financial performance.

Keith Sherin

Jeff, thanks a lot. I'm going to start with the second quarter summary. We had continuing operations revenue of $35.6 billion, which was down 4%. But as you can see from the notes on the bottom of the page, we were impacted by not having any consolidation of the NBC revenues. Excluding the impact of NBC, GE revenues were up 7%.

Industrial sales of $23 billion were down 6%. Obviously, that was also impacted by NBC. And I think the best way to think about the Industrial revenue is to look over on the right side in the segment revenues. Industrial segment revenues were $23 billion, were up 10% and that doesn't have any impact from the sale of NBC.

Financial Service revenues were $12.4 billion, were down 1%, bringing earnings of $3.7 billion, were up 18%. And we delivered $0.34 a share of operating EPS, up 17%.

Jeff covered the cash flow of $4.4 billion. That was also impacted by NBC, but we're on track for our total year outlook.

For tax rates, the tax rates in the second quarter were in line with the framework that we outlined in the first quarter. The second quarter year-to-date rate you could see was 41%, driven by the NBCU gain in the first quarter. If you look at the second quarter, the GE rate of 21% was consistent with our expectations that we laid out in that first quarter call.

We continue to expect the GE tax rate for 2011, excluding the NBCU gain, generally consistent with the second quarter rate.

For GE Capital, the tax rate of 18% for the second quarter was consistent with the expectation of a high teens rate for the year, up from 2010 as pretax continues to improve in financial services.

On the right side, you can see the segment results. Industrial revenues were up 10%. Segment profit was down 3%, driven by Energy. I'm going to cover the details of each of these businesses in a few pages. And for GE Capital, segment profit doubled in the quarter, leading to the overall segment profit up 18%.

Before I get to the businesses, I'll just start with the other items page. On the positive side, we resolved some commercial items and we had a $0.01 after-tax benefit and we recorded that at corporate. Offsetting that, we also had $0.01 after tax of restructuring and other charges mostly related to the energy acquisitions, so legal and deal fees and other nonrepeat items from purchase accounting were also recorded at corporate.

We also had 2 transactions recorded in discontinued operations in the quarter. We closed the exit of our Singapore consumer book in April that resulted in a $300 million gain, and that was partially offset by $100 million loss on the disposition of our Australia, New Zealand mortgage book. The net was a $0.02 after-tax benefit in discontinued operations and a $7 billion, overall, of reduction in investment. So overall, not much activity in continuing ops in Q2 and other items.

I'm going to start on the businesses with GE Capital. The good news here is GE Capital continues to improve. We've gone from having many pages over the last several quarters to cover GE Capital, down to one page today. The additional information is all in the supplemental charts that we posted this morning, so we just try to consolidate this. But all the data that we've been giving is in the supplements.

For the quarter, revenue of $11.6 billion was down 1%, and that's in line with our ending net investment gain down 2%. You could see the pretax earnings were up 3x over the last year. Net income of $1.655 billion was up 2x over last year. That's driven by lower credit costs, lower impairments, partially offset by the lower assets.

You could see our Tier 1 common ratio went up by 10.4% and our leverage was down a full point year-over-year.

On the right side, our asset quality metrics continued to improve. 30-day delinquencies were down everywhere, except mortgage. That's up slightly, mostly because of the declining asset base. Total mortgages were down $6 billion x the impact of foreign exchange from the beginning of the year, so we continue to run off that book.

Down on the bottom right, in terms of dynamics, we had a very strong volume quarter. Margins were strong at 5.3%. Our non-earnings and losses were better. Reserve coverage remained strong.

And I'll just cover a couple of highlights for the businesses on the left side.

First is Consumer. Our Consumer business had another very strong quarter. We ended Q2 with $146 billion of assets, that was up 3%. Net income of a little over $1 billion was up 57%, driven by lower credit losses.

The U.S. Retail Finance business had a great quarter. They earned $588 million, up 51%. That's driven by lower loss provisions as our delinquencies improved by over 100 basis points. And the Retail business in the U.S. had a good volume quarter. The volume was up 8%.

Global banking earned $310 million, up 17%. That was driven by lower credit losses, partially offset by the loss of the Garanti income in Turkey.

In U.K., Home Lending earned over $44 million in the quarter. It's the seventh consecutive quarter of positive earnings. Our U.K. Home Lending assets declined $1.7 billion year-over-year, and we realized 115% again on the mortgages that we liquidated in the second quarter above the marks that we'd taken on valuation.

For Commercial Real Estate, we're still facing losses, but we are seeing signs of stabilization. We lost $335 million in the quarter, but that was $190 million better than last year and $23 million better than Q1. In Q2, we had $92 million of credit losses and $339 million of marks and impairments. And during the quarter, we sold 129 properties for $1.6 billion, with $26 million in gains. Our assets are down 17% year-over-year, excluding the impact of the weak dollar, and they're down 5% from the first quarter.

We are seeing signs of increased liquidity. If you look at the sales of quality properties, we're seeing stabilizing rents. And occupancy, on average, in the portfolio is up. Our unrealized loss at the end of the year was $5.1 billion. It's down to $4.1 billion at the end of the second quarter. So slight improvements, but we're all still focused on returning this business to profitability.

Commercial Lending and Leasing also had another strong quarter. Earnings of $701 million, they were up 124% from last year. Those results were also driven by lower losses and impairments. CLL had a good volume quarter. They did $10.8 billion of volume, it was up 33%. Americas net income was up $260 million and Europe's net income was up $40 million.

GECAS had another strong quarter. Earnings of $321 million, up 11%. The team funded $1.9 billion of volume with strong margins. And we ended the quarter with 2 aircraft on the ground, both in the process of being redeployed.

Energy Financial Services also had a good quarter. Earnings of $139 million, up 10%, driven by lower marks and credit costs. So overall in GE Capital, a very strong quarter.

Next is Energy. Energy had a mixed set of results in the second quarter. Second quarter is going to be toughest quarter we see in Energy, and I'm going to show you more details about that on the next page, but first I'll go through the 2 businesses.

For Q2, on the positive side, we're seeing great orders growth. Orders of $9.9 billion in Energy were up 24%, 16% x acquisitions. Equipment orders of $5 billion [ph] were up 42% and 29% x acquisitions. Main drivers were wind and aero derivatives. We had orders for 667 wind turbines versus 248 in Q2 of '10. We had orders for 41 aero derivative units versus 16 units last year. Partial offset was thermal. We had orders for 41 gas turbines versus 42 last year, but last year included the large Iraq deal. We had 25 9Es in one quarter in one order.

Overall, orders price for Energy was down 2.5%, that was driven by wind order pricing down 7% and thermal order pricing down 10% in the second quarter. Service orders of $4.9 billion were up 10% and revenues of $8.1 billion were up 1%. That's driven by the acquisitions partially offsetting all the lower volume.

Thermal revenues of $2.0 billion were down 12% and that was principally driven by 5 fewer steam turbines. And wind revenues of $630 million were down 46% in the quarter. We shipped 269 wind units in the quarter versus 511 last year. Service revenues of $4.4 billion were up 8% x the acquisitions driven by Power Gen Services, up 7%. And segment profit of $1.3 billion, it's down 24% and it's driven by the lower wind volume and the lower wind pricings. It explains almost all the variants.

Next is Oil & Gas. This business is experiencing tremendous growth. We're getting growth organically. We're getting growth from our recent acquisitions, and we had a little bit of a benefit from the weaker dollar in the revenue line. Orders of $2.9 billion were up 45%. 19 points of that growth came from the deals Wellstream and Wood Group and we also had 9 points of translation from FX, so 17% order growth organically for the Oil & Gas business.

Equipment orders of $1.8 billion were up 41%. We had strong growth in Turbomachinery from a large LNG order in Australia. Service orders of $1.1 billion were up 52%, driven by upgrades in places like Cutter in Canada. And total Oil & Gas orders price was positive. It was up 2.1% in the quarter.

Revenues of $2.5 billion were up 39% and there's a similar impact from exchange and deals as there was with orders, so you end up with about 10% organic revenue growth. Segment profit, $333 million. It was up 14%. We had benefits from the higher volume, we had benefits from the acquisitions and we had benefits as we had material deflation in the business that was partially offset by lower pricing and some negative impact of the foreign exchange.

As I said, this is the toughest quarter of the year for Energy Infrastructure. And as we also said at EPG, we're going to be growing in the second half in Energy. So let's go to the next page and look at the framework for the first half, second half for Energy.

I think it's important to look at the Energy results in more detail to see the dynamics of what's been a drag in the first half of the year and how we see the improvements coming in the second half. So what we put here, the top half of this chart shows the Energy Infrastructure op profits. It compares the first and second halves of 2010 and 2011. And on the left side, you can see an op profit of $2.9 billion, it was down 14% in the first half.

On the right side, you can see we expect the op profit to be higher in the second half versus last year's second half. So we're going to get growth in the second half, and the main driver for this performance is going to be volume. And what we did, we put the unit numbers for GE energy alone on the box on the bottom of the page so if you look at the left side, you can see the volume declines that this business has had to deal with in the first half of the year. Wind turbines were down 26%, gas turbines were down 11%, steam turbines were down 59% and aero was down 14%.

And on the right side, you can see how dramatically those dynamics change in the second half. Wind turbines will be up 16%, gas turbines will be up 33%, steam turbines will be up 80% and aero will be up 23%. So overall, this volume is going to be up a little more than 17% in the second half, and 90% of the equipment that we're showing here is already in firm orders in the backlog.

So what does this mean for margins? Jeff showed you the pressure we had in the first half. If you look at the top on the left side, in the middle, you can see the first half margins were down 3.8 points. That was driven by the wind volume and the pricing that I mentioned.

And on the right side, with all this additional volume, we expect margins to be better than the first half, but still lower than last year's second half when we were up over 20%.

So to wrap this up, we had a tough first half in Energy. The second quarter is the low point for the business. And with the strong volume profile that we've got and the benefit of the acquisitions, we expect to resume growth in the second half and beyond.

Let me move on next to Aviation. The Aviation market remains strong in the quarter. Orders of $5.3 billion were up 37%. Our commercial engine orders of $1.6 billion were up 78%. That was driven by GE 90 and CFM. Military engine orders of $389 million were up 87%. And Jeff mentioned the success the team had with $27 billion of wins at the Paris Air Show. None of those announced wins are in these orders. Those wins will turn into orders when we get purchase orders from the airframers, usually 12 to 24 months before delivery. So this industry has got a very strong equipment outlook.

Equipment orders price was up 1.6% and we ended the quarter with a backlog of $20.9 billion, up 9% versus last year. Service orders of $ 2.7 billion were up 14%, driven by strong spares. The commercial spare parts orders were $23.9 million per day, which was up 18% and that was partially offset by military services, which were down 10%.

We had revenue of $4.7 billion, it's up 11%, driven by equipment up 2% and services very strong, up 21%. We only shipped 4 GEnx engines in the quarter and that volume will ramp up in the second half as both the 787 and the 747 will be certified before the end of the year. And segment profit of $959 million was up 9%, driven by volume and services, partially offset by higher investments in R&D and engine programs.

On the right side is Transportation. Transportation business had another strong quarter in Q2. Orders of $1.4 billion were up 19%. Equipment orders of $835 million were up 5%. Service orders of $534 million were up 50%, and the equipment backlog closed at $ 4.2 billion, up 26% over last year.

Revenues of $1.2 billion were up 74%, driven by a higher volume. We shipped 40% more locomotives to our U.S. customers and almost 5x more international locomotives, driving those equipment revenues up 72%. Service revenues were up 76% on strong part sales and higher customized service agreement revenue.

So segment profit here was also very strong, $178 million, up 7x over last year, driven by that higher volume and the continued improvement we see in services.

Flip to the next page, it's Healthcare. The Healthcare team delivered another quarter of positive growth with continued reinvestment. Orders of $4.7 billion were up 9%. Equipment orders at $2.6 billion [ph] were also up 9% with DI up 6% and Clinical Systems up 14%.

The U.S. equipment was up 7% and non-U.S. was up 10%. Some of the growth, globally. China was up 25%, India was up 15%, Latin America was up 34% and the pressure point was Europe. Europe was down 3%, but down 14% x the impact of the weak U.S. dollar. So that gave us some pressure in the quarter. Service orders were up 10% and total orders price was down 1.3% for the business. We ended the quarter with equipment backlog of $4 billion, up 8% over last year's amount.

Revenue of $4.5 billion was up 10%. It was driven by both equipment and service, both about that level. And just by product line, it's pretty broad based. Ultrasound was up 12%, clinical devices were up 20%, CT was up 11%, MR was up 7%, Life Sciences were up 7%, x-ray was flat and services were up 9%.

So segment profit of $711 million was up 8%, driven by higher volume and productivity, partially offset by the negative price and $44 million of higher investments in new products.

And on the right side, Home & Business solutions had a challenging quarter. Revenues of $2.2 billion were down 4% and segment profit was down 26%. In Intelligent Platforms revenue was up 19%. They had a good quarter. Lighting revenue was up 7% and appliances were down 12%.

So overall here, the results in this segment were driven by appliances. The domestic market in the quarter was down 10% in units. We also saw material inflation and some of the tough comparisons versus last year were driven by the non-repeat of the government incentive programs we had last year in the first half. There were incentives to replace more -- replace their appliances with more energy-efficient products. And we're also continuing to do a lot of investment here in the new product line. New product programs were up $20 million in the quarter.

So with that, that's a run through of the business. Let me turn it back to Jeff.

Jeffrey Immelt

Great, Keith. Thanks. Going back to the 2011 operating framework, the framework remains intact and highly achievable. We expect to see positive earnings growth in our Industrial businesses. Revenue growth in the second half should be very strong. As Keith said earlier, Energy Infrastructure earnings will grow in the second half. And Capital earnings will continue to grow with higher margins, lower losses and real estate firming. Our expectations for corporate for the year are unchanged. So we're going to see solid double-digit operating earnings growth for the year, and we're confident in our total year framework for both earnings and CFOA. So again we feel great about the 2011 operating framework. We think it's highly achievable.

And lastly, just the earnings growth outlook. As we think about the remainder of this year and into the future, in 2012, I think the outlook remains very strong. I reviewed this with you at EPG. We see momentum building for 2012. We see the key factors around GE Capital continuing to improve. Our balance sheet strength and liquidity remain high.

On the Industrial side, Healthcare and Transportation earnings should continue to grow. And I think we should have solid growth in Aviation and Energy next year. I think there are couple of ways to reflect -- the American order in Aviation really signals the return to equipment purchases of the U.S. airlines. And I think that's very significant. And I point out the energy orders of almost 40% in the quarter, that's largely with the U.S. still not participating. And so I actually think we're at the beginning of a very positive Energy and Aviation cycle and when I look at how our businesses are positioned. And we also have a full year of acquisition impact in Energy.

Our margin should improve in 2012. So in 2012, we should have both solid organic growth and expanding margins. And finally, we'll retire the preferred shares, which will provide an EPS lift for 2012.

So look, we like our portfolio, we like the GE outlook. And Trevor, with that, I'll turn it back to you.

Trevor Schauenberg

Great. Thanks, Jeff. Thanks, Keith. Chanel, I think we're ready to open up the lines and head over to questions.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of Deane Dray with Citi Investments Research.

Deane Dray - Citigroup Inc

I would love to hear some color around the assertion on the renewables that if we could be reaching the bottom both on the demand as well as pricing, just what sort of indication, support [ph] activity, et cetera?

Keith Sherin

Well, I'll start and then I'll let Jeff follow. Deane, basically if you look, we're working our way through that last wave of the very profitable U.S. bubble that we had and you can see the margins and the pricing was really brutal in the quarter. On the other hand, you're starting to see a lot of order activity. And you see the orders from the second quarter and the V we had and we're seeing a lot of global activity. They're at lower margins than that previous U.S. high-priced backlog, but the volume is going to be pretty good. And the last thing I'd say is that there's a program in place where the government obviously gives some benefits to wind installations, it's the production tax credits that are in place through 2012. I think the wind farms would have to be installed and operating before the end of the year. And I think that depending upon how people view the probability of that being agreed to and extended in the future, you may see some pull in the wind business to put those units in place before the end of '12 here in the U.S. So I think we're starting to have discussions with customers about some of that activity. So I think you're still going to face margin pressure in the second half from wind, but I think you've seen this quarter is, as I said, the worst of it. And with that, Jeff, I don't know if you have anything to say on the wind market.

Jeffrey Immelt

I think it's highly likely that we get a lot more volume in the U.S. over the next 18 months. We've got the 1.6 megawatt, which is the highest performing unit. So we're going to gain market share probably in that activity. And then Deane, what I would say in Canada, Australia, bunch of other places in the world, the wind wave, if you will, is just taking off. So I think from the unit standpoint and from a pricing standpoint, we're going to see a little bit better performance.

Keith Sherin

The business has gone from extremely high margins, over 20%, and it will be down between high single digits to low teens in this period. So it's been under -- it's been a tremendous performer for us. It's had an incredible amount of economic results that's generated for us. But it's going through a period here where it's resetting and as I said, I think the second quarter is the bottom of that, but there'll still be additional pressure as we go through the second half of this year. In fact, we've taken that into account when you look at the forecast we gave you on that page on first half, second half, Deane.

Deane Dray - Citigroup Inc

And then can I get some additional color on the Aviation side. And you touched on this in the remarks, important win from the American order decision Boeing on re-engining. And just if you can comment on some of the activity and orders coming out of the Paris Air Show. I did hear some grumblings of that there might have been some discounting on the service contracts, but if you take us through -- has there been any change in the total economics on these engine orders between what you're expecting on equipment sales versus service?

Keith Sherin

Well, I see the outlook as very good. We went into the Paris Air Show having spent a few months where the CFMI team had not really taken a lot of orders on the A320neo. And we came out of that air show with a more than 50% share of very strong performance. We like the orders that we got. I'm sure that the competitors like the orders they got. The launch is a tough process, but we've been disciplined about our approach. I think we do use everything that is available to us to compete. And our team feels that the economics that we have on these launch orders are as good as we've had on any launches, and we feel great about it. I would add about one thing that's a little bit of real positive here in the last week, obviously, with the American order. When you take a look at the decision by Boeing to re-engine and we're in a partnership with Boeing on that, this is the third application for the LEAP-X engine. And we've got a sole source position and I believe that you're going to see that aircraft in service for well into the 2020s. And that is a tremendous opportunity for the Aviation team. We're committed to it and that investment that we've been making in the LEAP-X technology for the last several years has really proven itself and you can see it now with the sole source position on the C919 in China. We're competing effectively on the A320neo and now we're going to have a sole source on the next generation of the 737 when Boeing finally approves that at their board level.

Jeffrey Immelt

I would add, Deane, maybe a couple of macro comments on Aviation, just to piggyback on what Keith said. If you're an investor and you sit back and just game board commercial Aviation from wide-body to narrow-body to regional jets and you look at the position GE has, not just for a year or 2, but for a decade, you got to like our position. You really have to like where we are on 787, 777 and narrow-body. And so you got to like not just for a quarter, but for a decade where we are #1. And then I look financially for Aviation guys. Look, we've got the higher R&D and the run rate, we've got the engines coming down the learning curve. We've got all this service revenue coming through. We're going to be able to grow our Aviation operating profits steadily through this cycle while launching these new engines. And so I think we've got the business positioned most strategically and financially exactly where we want it to be positioned for our investors. And that's why I think we like the business.

Operator

Our next question comes from the line of Steve Tusa of JPMorgan.

C. Stephen Tusa - JP Morgan Chase & Co

I didn't quite get the -- I guess, I didn't quite understand your answer to Deane's question about the discounting spares and I guess on top of that, when you look at Aviation the last cycle they had, like, a margin that was above 20%. With all the kind of moving parts here, I understand there's development expenses and all that kind of stuff. Can you get back to north of the 20% margin in Aviation over the next, let's say, 3 to 5 years?

Keith Sherin

Look, let me answer the first point. There was no unusual discounting of spares, which was anything other than we would've done anywhere to win any of those orders. So I think we have a big business, we have a very profitable service business, we have incredible relationships and long-term contracts with our customers and there was no crazy stuff that the team did to get those orders. So I just want to be clear on that. If you look at the margins in Aviation, I think they're extremely strong. Obviously, they're powered by the incredible installed base we built over the last 15 years. I think, right now, the first half, they've been very

strong. In the second half, they may be a little lower than what we saw in the first half. But this is a business that's got tremendous girth. I mean the 40% of the engines still haven't even come in for their shop visit. We're winning market share on new orders, which is going to continue to build our advantage in the installed base over the next 10 or 15 years. I think, as Jeff said, the R&D amount is in the run rate. We told you about that last year, a year ago at the Air Show. What we're going to have to deal with to launch to GEnx engine and to do the development, we needed to be competitive on the A320 and on whatever happened in the 737 world and what we're doing in China. So I think all that's out there and it's in the run rates, and we've got a tremendous franchise. So I think this business has the opportunity to have a very high margin versus same period of time based on an installed base and the tremendous service franchise we have.

C. Stephen Tusa - JP Morgan Chase & Co

But '20 is not like a good, kind of mid-cycle target?

Keith Sherin

I don't know.

Jeffrey Immelt

Steve, look, I think that margins should be able to grow during this time period, and services are going to be very strong during this time period, so I think that's a great target for this team. I'm not giving you a forecast for what the [indiscernible]

C. Stephen Tusa - JP Morgan Chase & Co

No, we're not -- I'm not going to hold you. Just want to get an idea of when -- you're booking all these great orders. Clearly, it's a boomer over the next several years. That is, the leverage is always a hot button issue and so I just wanted to have an idea of where that's going. The Energy margin in the second half, I mean it's going be above 15%, but it's going to be below 20%. You could fly a 737 through that range.

Keith Sherin

With our engine on it?

C. Stephen Tusa - JP Morgan Chase & Co

Any -- I mean, it's obviously again it's going to be a hot button issue here in the second half. Can you give us any more directional idea of where within that range? I mean should we think about the midpoint? I mean, I know this is going to be something that over the next couple of quarters people will be looking at very closely. Just want to have kind of the right bar.

Keith Sherin

I think I'm not going to pick a margin number here. Obviously, we gave you the direction. I think September 20, you may know, we've got a separate review, which is just going to be focused on the Energy business. And we're going to do that in Crotonville and I think at that point maybe the team will give you a little more look at the dynamics of what the equipment volume is going to do in the second half and how we feel about the mix between equipment and services. But look, there is going to continue to be pressure on the dynamics that you saw in the first half here. The wind business is going to continuing to be a drag. We're going to continue to have the acquisitions, which are terrific for us. They're fantastic. And as you go forward, we will continue to improve the margin rates of those acquisitions, but that's a drag in the second half. And on the offset, they're going to have tremendous volume, and I showed you that. So I think we've laid it out, we're going to have better margins than we had in the first half, but they're not going to get -- we were down a little worse in the second quarter than the first quarter. That will not continue in the second half.

C. Stephen Tusa - JP Morgan Chase & Co

One last one. It seems like things are getting better here in the second half. Is there any reason why your earnings would be down quarter-to-quarter from second to third quarter? It seems like things are just continuing to get better. So I'm wondering if there's anything -- any onetime or anything like that, why earnings would be down because the street shows down earnings from second quarter to third quarter.

Keith Sherin

I think GE Capital, if you look at GE Capital on a run rate, I'm not sure what the street is quarter-to-quarter. I think you for us, in GE Capital, we made $1,655,000,000. If you look going forward at that, there's a couple of things that occur in the third quarter that we got to take into account. I think, one, we have our normal impairment review at GECAS. We'll have to see how that comes out. Two, in the consumer business we had a real benefit in delinquencies in the second quarter and historically, there's an increase in delinquencies in the third quarter in that Consumer business, so we'll have to see how that plays out in the market. Those will be the 2 biggest dynamics that I would think about.

Operator

Our next question comes from the line of Julian Mitchell with Credit Suisse.

Julian Mitchell

My first question was on the Oil & Gas margins. Those were down, I guess, a couple of hundred points in the first half year-on-year. Could you maybe split out sort of what's driving that in terms of how much [indiscernible] acquisitions are weighing on that? And if you think in the second half you get the same year-on-year trend on the margins?

Keith Sherin

Yes. On Oil & Gas in the quarter, 50 basis points of the decline was driven by acquisitions. Organically, I think the largest driver is the fact that we had negative value gap in the quarter, close to $30 million, so pricing and deflation were a negative in total. But if you look the order price index for Oil & Gas turned positive, so that was the first time since the second quarter '10 and we're still obviously dealing with the negative price from the prior periods in the quarter. So I think the acquisitions are going to continue to be dilutive to the margins. Obviously, Oil & Gas has 2 of the bigger acquisitions affecting them. And we probably expect about 50 to 75 basis points in the third quarter and fourth quarter related to those deals. And then organically, we're going to have to see how we do with the value gap. I think pricing is going to be less negative in sales, but it depends on the timing of how fast that orders price works through the backlog, Julian.

Julian Mitchell

Okay. And then just on the Energy business, I mean you mentioned the price declines in Q2 on wind and thermal. I mean how would you sort of expect to manage that? Because I guess the volumes pickup is substantial from here, which you highlighted in the slide, so you can't really do much sort of on the headcount or capacity side. Or is your assumption just the pricing will naturally get better in '12 after sort of 6 or 9-month lag versus volumes turning?

Jeffrey Immelt

We always -- we go through a formal process on quoting and then backlog and then revenue, right? So when we look at the quoting today, the pricing is actually trending up on the turbines. So I think there's always a time lag on that as you go through it. And at the same time, we're doing material productivity, 2% to 3% material productivity, and we're still aiming to get some deflation in there as well so...

Keith Sherin

Plus our service business.

Jeffrey Immelt

And the Service business is extremely strong. So I think the way you got to think about it, Julian, is there's a time lag to the pricing that takes place. That always is the way it goes. And I'd say we're seeing the early indicators of a turning, but that's going to take some time. Services, actually the pricing is improving and the margins are improving, and that's a good thing. And then we're going to drive productivity and material pricing and things like that at the same time. And I think you put all those things together, we really believe that earnings for Energy are positive in the second half, and they're positive in 2012 versus 2011.

Julian Mitchell

And then just lastly on Healthcare. I mean, you guys, as well as Philips, have had surprisingly good order growth in the U.S. in the last 3 or 4 months. I just wondered if you thought that was -- since there was something broader in terms of the need after sort of 3 or 4 years of underinvestment, there's a couple of years of catch-up spend or if you expect that order growth to sort of tail off from here?

Jeffrey Immelt

Julian, I think it's not really a boomer, I wouldn't say. I think what our expectation is for the U.S. is steady market in the low to mid single-digit type of growth and if it does better than that, we'll be pleasantly surprised. I'd say counterbalancing that a little bit is Europe where you still have a big public spend market in Europe and that was probably slightly worse than we thought. So the 2 of them kind of balance each other out.

Keith Sherin

And the growth in the developing world and our investments in products and distribution are paying off. And you're going to see -- you can see those in the numbers in Healthcare. I think that's going to be the strength -- continuing to be the strength for the rest of this year and probably next year and beyond here. And Jeff described how we thought U.S. and Europe will play for us.

Operator

Our next question comes from the line of Jeffrey Sprague with Vertical Research.

Jeffrey Sprague - Citigroup

Just one more on Energy and then I'll shift gears. Keith, you gave us the price on orders. Can you give us price on revenues and how that played out in the quarter?

Keith Sherin

Yes. I'm just going to have to find it here. What else you got?

Jeffrey Immelt

You want to do your second question first?

Jeffrey Sprague - Citigroup

I'm actually wondering on GECAS. I mean you guys have demonstrated that the accounting there is maybe a bit more conservative than some of the other guys that took some impairments 6 months back or so. But given that the orders have been so dramatic on the Neo and now kind of this big bump on 37 re-engine, does that change the landscape of valuations on older narrow-bodies dramatically? Have you guys worked through that yet?

Keith Sherin

We thought about it, obviously. We obviously thought about it on the A320. GECAS has continued to refresh their fleet year-after-year. If you look, we do have exposure -- a minimal amount of exposure. We got the newest fleet. Our average age is something like 7 years and we thought through how do you -- the toughest planes right now are clearly the 737 classics, and we're really continuing to make sure we got the appropriate valuations on those. And I think we're going to continue to have to look at that. But I think the team has worked through it, looked at what we think the implications are based on previous transitions from one technology to the next. And they feel good about their valuations. But I said, we're going to go through the review of Aviation valuations again in the third quarter. We'll have to see if there's any change to that. But clearly over time, Jeff, when these planes finally are put into service and they're 10% to 15% more fuel efficient, you're going to have a residual value impact on the planes and it will transition in over this period between now 2015, '16 and '17 when these new more fuel-efficient planes come into the market. So we have been more conservative, as you said, on how we do depreciation and how we view the residual value on our aircraft versus some of the competitors that we've read about. But I think we're going to have to continue taking it into account. We've obviously thought about that as we put investments into these engines and some programs and also purchase planes in GECAS.

Jeffrey Sprague - Citigroup

And if you're still looking for that other?

Keith Sherin

On selling prices. If you look in the quarter, on renewables, selling prices were down 11.7%, on gas turbines on thermal, selling prices were down 1.9%.

Jeffrey Sprague - Citigroup

Right. And then just finally, if I could. On R&D, I guess you implied it's kind of fully baked, but don't you have a further step up now on the American wind, on aero R&D?

Jeffrey Immelt

Jeff, we really don't. I think the LEAP-X is kind of in the run rate and we had anticipated that. The application increase will go into the LEAP-X, right. So you'll have a little bit more in the LEAP-X, but the GEnx is kind of cresting and is headed on the other way down. So that's how I think about it. We're kind of almost done with the GEnx and to your point, as we do each application, you get charges to certify and stuff like that. So they kind of offset each other.

Keith Sherin

We will have higher R&D, but as a percent of sales, certainly in Aviation we don't expect it to be greater than the growth in revenue, that's for sure.

Operator

Our next question comes from the line of Shannon O'Callaghan with Nomura.

Shannon O'Callaghan - Nomura Securities Co. Ltd.

The wind orders in the quarter were really good. The comparison was particularly easy this quarter. They got tougher. I mean, are you still expecting wind orders to be up in the second half year-over-year or was this a particularly strong quarter for some reason?

Keith Sherin

Our outlook is that the wind orders are going to continue to be pretty good.

Jeffrey Immelt

I think our pipeline is pretty strong and as Keith mentioned earlier, some of that is going to go to the Americas.

Keith Sherin

Yes, our outlook is that they're going to continue to be up. Not maybe as up, as you said, the second quarter comparisons are easy, but our expectation is we'll continue to be up.

Shannon O'Callaghan - Nomura Securities Co. Ltd.

And the lead times on these orders are what at this point?

Keith Sherin

It's a pretty flexible supply chain. I don't know when the last time someone had to place an order to get it put into service before the end of '12, but I'm guessing 6 to 9 months would be the latest probably.

Shannon O'Callaghan - Nomura Securities Co. Ltd.

Okay. And then just -- you're continuing to generate some modest gains in Commercial Real Estate in the U.K. piece, which -- how encouraging is that? Does that give you any hope of sort of accelerating the wind downs there and the remixing of kind of the asset mix at GE Capital?

Keith Sherin

Well, it's obviously better than that outlook that we've had over the last couple of years. I think the stabilization has been very positive. The funds flowing into high-quality properties have been very positive from both pension funds, insurance funds and some global investors. We're going to have see when it crosses over into other broader asset classes, the more mid-market office and things like the warehouse and some of the multifamily space. So it's been encouraging, it hasn't turned into a complete step function change on the valuation on our equity book yet. But certainly, the trends are good and having the embedded loss go down by $1 billion in the first half is positive. That's based on not only the work we're doing with depreciation and also impairments, but also not having further declines from a valuation perspective in the marketplace. So occupancy was up 1 point in the quarter. For us, rents have stabilized. So I think we'll have to see how the environment plays out over the next several months in year, but at least we've stabilized and we feel pretty good about the progress the team has made in that portfolio.

Operator

Our next question comes from the line of Steven Winoker with Sanford Bernstein.

Steven Winoker - Sanford C. Bernstein & Co., Inc.

Just first question around, I'd like to dig in still to the pricing and material deflation question around energy, but more broadly. So you guys are still getting material deflation despite the commodity -- year-on-year commodity changes elsewhere and what we're seeing across your industries. How should we think about that value gap, particularly given the pricing and [indiscernible] backlog? And how long can you maintain that?

Keith Sherin

Well, you know we are seeing material deflation. We'd expect to have over $300 million in material deflation for the year. We're going to have some inflation on labor and the pricing has gone from a positive of a couple $100 million last year to a negative of somewhere between $500 million and $600 million, $700 million. So the value gap is negative. Our expectation in 2011 is that's it negative. It's driven by the negative pricing. And our objective is that, that will level off as we go through 2012. As Jeff said it, we're putting out quotes today that are better in pricing than what we're seeing in orders today. But they come in, in the next 6 months or so into orders and then it takes another 9 months, 12 months to get those orders into sales. So I think we're just going to have to work through this backlog. We've anticipated that when we put together the framework we have for 2011. We've anticipated what we know today for what we put together for the framework for 2012. We've got to get more material deflation. We got to continue to do a good job of sourcing from low-cost countries. We got to simplify our products and get them to a lower cost point from a variable cost perspective and we got to be efficient in our investments on a base cost side. So our whole team is focused on the value gap and that's what we're going to be working on.

Jeffrey Immelt

Steve, as I said earlier, I'd like to manage the place to get positive margin rate growth in 2012. The way we're going to do that is good volume, try to keep the value gap no worse than '12 versus '11, good services margin enhancement and R&D as a percentage of revenue cresting, right. And those are the key levers and that's what Keith went through and that's how we'd like to run the place. We got to do our operating plans and stuff like that, but that's how I plan to kind of manage the team.

Steven Winoker - Sanford C. Bernstein & Co., Inc.

And are you seeing increased competition from what you -- if you think about relative to the last cycle, we've seen sort of maybe a little bit reinvigorated European competition not to mention Chinese and other competitors attempting to break into the mature economies. Are you seeing any change in that font at this point?

Jeffrey Immelt

Look, I think, we've got good -- we respect our competitors, but I think if you look at what we've done -- let's pick our big -- Aviation, we've launched the GEnx and now the LEAP-X and we've really, I think, reestablished our leadership in Aviation. In Energy, you're seen the Flex -- the new large frame Flex 50 [indiscernible] and soon to be Flex 60. They're going be the highest efficiency, most flexible gas turbines in the market. The number of products we have has grown substantially. So I think -- Steve, look, we respect our competition, but I think we come at this cycle with more weapons than we probably ever had. And so I think that's where the investment has gone.

Steven Winoker - Sanford C. Bernstein & Co., Inc.

And I guess I would say or the question is if you think about the upcoming gas cycle as it comes and even the wind cycle on the state mandates, would you expect to be able to get to the same share levels that you had in the last upturn?

Jeffrey Immelt

Look, here's what I would say. As we have about 50% share of the gas turbine business today, I surely don't anticipate it going down. So I think that's -- we plan to play hard. On wind, wind is kind of a different story. We're always going to have high market share in the U.S. and lower market share on the rest of the world.

Steven Winoker - Sanford C. Bernstein & Co., Inc.

Okay. And then just tax rate. Keith, can you may be address that a little bit in terms of your expectations for the progression there considering where you came out in the quarter?

Keith Sherin

Yes. If you exclude the impact to the NBCU high tax in the first quarter, our expectation is that we're going to have a tax rate for the x GE Capital in the low 20% range. And for GE Capital, we expect to have high teens tax rate as their pretax profitabilities improve and the structural benefits have kind of stabilized out at, I don't know, somewhere around the $350 million a quarter or so. So there are uncertainties that we have. We've got the 2005 and 2006 and 2007 audit, that's under review to be close. If that got closed, that could provide us with benefits that would maybe beyond those amounts I have. And then obviously any legislative changes that occur, usually they would be prospective. I don't imagine they would hit us this year. So we're anticipating somewhere in the range in what we saw in the second quarter for the year.

Operator

Our next question comes from Jason Feldman with UBS.

Jason Feldman - UBS Investment Bank

So I believe the Federal Reserve took over as regulator of GE Capital earlier this month. Any takeaways or surprises from the first couple of weeks? Do you have any greater clarity on what, if anything, might change there with the new supervision?

Keith Sherin

Well, you're right. The fed has become our consolidated regulator in July. We have had a few preliminary meetings with them, Mike Neal and his team leadership team, Dave Nason, our Head of Regulatory. We have had information requests and we will share information with them. But it's so early, Jason. I think we're going to be completely open and cooperative and give them access to everything they need and we look forward to working with them. So it's too early to say anything about the fed. But we're prepared as we could be, but I'm sure it's going to be different than the environment we've been in. We're not a bank and we're going to have to learn to report more like a financial bank and that's going to be a challenge. But it's just too early. We have just really just begun.

Jason Feldman - UBS Investment Bank

Okay. In Commercial Lending and Leasing, it sounds like originations continued to be quite strong, but you've got pretty broad exposure across small, midsized businesses. Given the increasingly uncertain macro environment, the debt ceiling debate, what's going on in Europe, have you seen kind of a change in sentiments among their customers or change in their needs or levels of loan demand kind of as a result of the increasingly uncertain macro environment?

Keith Sherin

Hard to connect the dots between that and some of the volume we see. I mean I think the environment has been really tough in the U.S. and Europe for the last 2 years and everything related to providing financial products to customers has been tough. For a while, they had a lot less access to credit. Now there's more access to credit, but it's still challenging. I'd have a hard time saying that there's a direct connection between the uncertainty and the debates in Washington or the debt crisis in Europe and the business we're seeing. I think on a relative basis, things continue to improve in our outlook. Our backlog is up in CLL. Our volume is strong. It's the first quarter we had actually collections equal originations, in total. Even though we've been running off the red assets, the green assets grew. And the pricing is pretty firm. So for us, the environment feels good and getting better, but I agree there's a lot of uncertainty for that customer base, and I guess it's going to depend on how all these things get resolved is when people have the confidence to even invest further. But for us, I think, it's good and getting slightly better.

Operator

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

Terry Darling - Goldman Sachs Group Inc.

Hey, Keith, I'm wondering if maybe we could see if you have an update on the all-in EPS impact from acquisitions this year, which presumably is dilutive, but I'm wondering if you have an updated number there. And you did mention you felt like the integrations were going well there. I'm wondering if there's enough data on what you think the range on EPS accretion for 2012 might be?

Keith Sherin

I think, the best thing I would say is let's see if we can give you an update on that in September at the energy meeting. I think it's less than $500 million pretax for the year right now and that excludes the amounts were taken to corporate. So I think that's the amount of our pretax, but we'll give you an update at the energy meeting.

Terry Darling - Goldman Sachs Group Inc.

Okay. And then in terms of the integration process, I mean, does that at this point directionally lead you to be more encouraged about what you're seeing from a synergies perspective there or is it still early days?

Keith Sherin

Yes. I think the teams of -- the acquisitions that have closed we feel very positive about. Everyone is a little bit above what the pro forma was for what we expected this soon. We're pretty good at acquisitions, right? We've got our processes, we send in our teams, we've got a lot of integration plans, we do a 100-day checklist. We've got a lot of formal reporting, we have a lot of additional resources that go in. And I think everything from our perspective on the Oil & Gas energy deals is a little bit above pro forma right now. So we like the businesses we bought. They obviously fit with GE well and they got good teams, good technology and they're off to a good start.

Jeffrey Immelt

Orders are good.

Terry Darling - Goldman Sachs Group Inc.

Okay. And then, Keith, I wonder if you could also maybe continue the kind of puts and takes on GE Capital beyond the third quarter? You talked about some of the issues that probably mean GE Capital EPS in the third quarter off a little bit, which is normal seasonally. But I guess I'm trying to balance the other pieces. The losses are coming down, but the asset base is shrinking on the other side of the coin. Maybe you can comment on new business margins. And 2012, overall, I know you're thinking up, but I'm wondering if you've got anymore color in terms of magnitude of [indiscernible] based on how those puts and takes are shaping up for you.

Keith Sherin

Well, Jeff puts 2 pluses on top of the bar. Look, I think I gave you some of the things in the third quarter -- look, obviously, the business continues to improve. We had $1.4 billion write-outs in the quarter, that's about 1.8% of financing receivables. With $800 million of provision, that's only 1.05% of financing receivables, I think, the provision. So that brought the reserve balance down, about $550 million. Our coverage is good at 2.3% in line with the asset improvements. The $800 million provision, I think that's lower by about $150 million, if you look at the supplementals, from some recoveries we've had where the amounts that we recovered were greater than the book value that we had. So that shows up actually as a reduction in the provision. And plus we did have some reserve in the quarter about 1/2 of that, the $150 million. So if you put that together, you're probably going to look at, over time, if you go back to 2003 through I don't know, 2007, you're probably dealing with a 1.2%, 1.3% type of provision that you should be dealing with. And that would be a more normalized thing and we're getting close to normal. I think the only thing that's really not normal yet is real estate and that's got a lot of room for improvement and that's going to provide a lot of earnings growth.

Jeffrey Immelt

That's what I'm going to say, Terry. Your bluebird here is real estate, really. We've seen the benefit from more liquidity. If you had a combination of some employment improvement plus liquidity, that's going to get a lot better, a lot faster. And so I think that's really the upward swing on GE Capital.

Keith Sherin

The ones, obviously, in the first quarter, the size of our Garanti gain doesn't repeat. I think that's the one thing that you would clearly look at just as a onetime item here, Terry.

Terry Darling - Goldman Sachs Group Inc.

You did have a lot of originations in the quarter. Where are margins on new business at this point? Did they come off a little bit of where the highs were last year? Are we still running hot there? What's happening at the margin with that?

Keith Sherin

They're still above a 2. We've had a very solid performance. Mike Neal and the team have been incredibly disciplined on pricing. And our objective, to get our returns up, and so they've been very disciplined and they've continued to have very good margin. They're not as high as the peak, but they're still very strong.

Terry Darling - Goldman Sachs Group Inc.

And lastly, and I hope relatedly, pace of buyback in the second half. Obviously, you got the Buffett preferred. You spent $1 billion or so in the first half of the year. Looks to be scoped to go higher than that in the second half, if you wanted to, but maybe you just comment on pace of buyback given the overall GE mosaic in the second half?

Keith Sherin

Well, we'll see. I think just the preferred, just to be clear, that's $3.3 billion. We'll retire 20% of what we did in 2008 in the fourth quarter in one swoop here when we retire that preferred. So that is the priority right now, but we'll continue to do the buyback and we'll continue to be opportunistic around the buyback.

Jeffrey Immelt

Terry, I would just add, what I said at EPG, we've got plenty on our plate from an acquisition integration standpoint. Our near-term emphasis is going to be dividend growth and buyback.

Operator

Your next question comes from John Inch of Merrill Lynch.

John Inch - BofA Merrill Lynch

Keith, just so I'm clear in terms of your commentary around provision, the provisions are down a lot of capital year-over-year, which was sort of expected that it's kind of a positive data point. Are we at that stage today in terms of the trajectory? Or would you still expect absolute dollar downward trajectory given your commentary?

Keith Sherin

I'm sorry, just the loss provision?

John Inch - BofA Merrill Lynch

Yes.

Keith Sherin

Yes. I mean, I think as I said if you look in the quarter at $800 million and 1.05%, that's a little lower then what our historic amount would be, precrisis. And it's got 2 things in the quarter -- we have to think about the dynamics. I'm not saying exactly what they're going to be going for. But first of all in the consumer space, we continue to see a very strong performance in asset quality. The delinquency decline was greater than we've seen previously from the first quarter to second quarter in the portfolio. And that resulted in lower provisions. Second thing is in the quarter, we had about $150 million of recoveries that were greater than our asset value that showed up as a reduction of provision and also some reserve releases. It was about split, 50/50. So that is a one timer, reduce the provision in the quarter a little lower than you normally would have seen.

John Inch - BofA Merrill Lynch

Okay, so that make sense. Keith, the businesses that you've been divesting in capital, which is part of the plan, what had kind of a headwind does that create, though, in 2012 because of the absence of the contribution benefit of the earnings that you're not going to realize next year? Is there a way to size that at this juncture?

Keith Sherin

I think the biggest one is Garanti. Obviously, that was just on -- it came along with the $0.03 and then they're making $50 million a quarter. And then beyond that, I think the range would be up to another $0.015 to $0.02 maybe. It depends on what we get done in the second half here, but that will be a range for you.

John Inch - BofA Merrill Lynch

That make sense. Maybe just lastly, could you just comment on what's happening to Japan sort of broadly? But then Japan as it pertains to your thermal business, you're hearing they're certainly ordering a lot of your product. I mean what's sort of been the impact and maybe you could sort of size that for us?

Keith Sherin

Well, we had about $600 million in the quarter of orders in Japan. Thermal was half of that, but it was energy orders. Error derivative was very strong. And I think, Jeff, you can talk about what you see as the outlook there for additional. We didn't have a big impact in the supply chain, we didn't have a big impact in the country itself in the quarter. I think the orders were good, but other than that...

Jeffrey Immelt

I think, John, there's going to be another wave of thermal orders. It's kind of like this is the summer of 2011 then we'll get ready for the summer of '12 and '13. So my hunch is that there'll be another wave of thermal orders.

Trevor Schauenberg

Thanks, everyone. We're going to wrap the call today. The replay of today's webcast will be available this afternoon. We will be distributing our quarterly supplemental date of schedule for GE Capital later today, probably a little earlier around noon today. I have some announcements regarding upcoming investor events. As Keith mentioned, we're going to be hosting our GE Energy Investor Meeting on September 20 at our Crotonville facility in New York. We will provide more meeting, logistics and information upcoming in August. And our third quarter 2011 earnings webcast will be on October 21. As always, we'll be available today to take your questions. Thank you, everyone.

Operator

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

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: General Electric's CEO Discusses Q2 2011 Results - Earnings Call Transcript
This Transcript
All Transcripts