General Electric Company (NYSE:GE)
Q3 2014 Earnings Conference Call
October 17, 2014 8:30 a.m. ET
Matthew Cribbins – Vice President, Investor Communications
Jeffrey Immelt – Chairman and Chief Executive Officer
Kieran Murphy – Vice President, GE Healthcare Life Sciences
Jeffrey Bornstein – Senior Vice President and Chief Financial Officer
Scott Davis – Barclays Capital
Nigel Coe – Morgan Stanley
Steven Winoker – Sanford Bernstein
Steve Tusa – JPMorgan
Deane Dray – Citigroup
Jeff Sprague – Vertical Research Partners
John Inch – Deutsche Bank
Andrew Obin – Bank of America Merrill Lynch
Good day ladies and gentlemen, and welcome to the General Electric Third Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. My name is Vivian 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.
Matthew Cribbins – Vice President, Investor Communications
Great, thank you. Good morning, and welcome, everyone. We are pleased to host today’s third quarter webcast. Regarding the materials for this webcast, we issued the press release presentation and GE Supplemental earlier this morning on our website at www.ge.com/investor. As always, elements of this presentation are forward-looking and are based on our best view of the world and our businesses as we see them today. Those elements can change as the world changes. Please interpret them in that light.
For today’s webcast, we have our Chairman and CEO, Jeff Immelt; our Senior Vice President and CFO, Jeff Bornstein, and our Vice President, GE Healthcare Life Sciences, Kieran Murphy. We’ve asked Kieran to join to talk about our life sciences business.
Now with that, I’d like to turn it over to our Chairman and CEO, Jeff Immelt.
Jeffrey Immelt – Chairman and Chief Executive Officer
Thanks, Matt. We continue to plan against the global macro backdrop to this volatile and one where some economic projections of recent been revised downwards. That said, we are seeing solid pockets of underlying growth in many of our markets. The good news for us is that we plan for volatile environment, our businesses are executing well, and we are tracking to our expectations for the year.
As a result, we had a good quarter. EPS was $0.38, an increase of 6% versus last year. Our Industrial segment profits grew by 9%. Our relative position in key markets is improving. We’ve gained share in transportation, aviation, power and healthcare. We had great new products.
Orders grew by 22%. For the first time in a while we are seeing volume improving for GE Capital in the US. GE grew margins by 90 basis points. We continue to generate benefits from our simplification efforts and are on track for more than $1 billion of costs out for the year.
Margins improved in six or seven businesses and our costs out momentum are strong. We remain on track for CFOA for the year. So we are running the company well. And we are executing on our portfolio strategy.
We launched the Synchrony IPO in July and as we move forward this will dramatically reduce the size of GE Capital and our presence in consumer finance and we’ve invested in platforms like Milestone Aviation, a helicopter leasing business linked to GE Aviation.
So we are on track to create a smaller GE Capital focused on commercial finance. At the same time, we announced the sale of Appliances a legacy GE business. The Synchrony spend, Appliances sale and also some acquisition from the second quarter, are all a part of repositioning GE to be the world’s best infrastructure and technology company with a smaller financial services division.
This is a more valuable GE with 75% of our earnings from industrial by 2016. We are winning in the market. Orders were robust in the quarter growing 22% and this was driven by 31% equipment orders growth and 10% growth in services. Orders pricing was positive in the third quarter.
Technology drives high margin share and we took orders for more than a 1000 Tier-4 compliant locomotives in the quarter and are ahead of the competition. Aviation continues to enjoy a great success with LEAP wins, GEnx share growth and the GE9X launch orders.
For the first time in a while, power and water equipment orders grew in the United States, up 41%. We now have 13 H turbines in backlog and we are enjoying good success in oil and gas as Subsea orders growing by 63% and the launch of the 20K Blow Out Preventer.
NPIs are helping healthcare to grow in the United States and new innovations are helping LEDs to grow orders by 60% and power conversion by 30%.
Service orders grew by 10% with growth in five of the six businesses, aviation and commercial spares were up 29% and power gen services grew by 10% despite some sluggish end-use markets.
Last week, we announced new analytical applications and that our predictivity solution revenues will exceed $1 billion in 2014. Orders growth was broad based geographically, US orders were strong with growth of 25% and growth markets expanded by 34% with five of nine regions up in the quarter.
These include Chine up 26%, orders from the Middle East, North Africa and Turkey doubled, Latin America was up 54%, Africa up 9% and Canada up 46%. Backlog is a record of $250 billion, up more than $20 billion in the past 12 months.
We had a service backlog true-up in aviation driven by finalization of terms with CFM for LEAP, which reduced the total by $2 billion, nonetheless were at record high. Strong orders positioned GE for sustained growth in the fourth quarter and beyond.
Segment profits grew by 9% with six of seven segments expanding. Year-to-date segment profit is up 10% driven by 5% organic revenue growth and 50 basis points of margin expansion.
Organic growth was up 4% in the quarter and 5% year-to-date, aviation and transportation remained very strong with equipment growth of more than 10%. Oil and gas organic growth was up 10%.
We saw a strong US environment in healthcare and power and water had sub-comps in the third quarter, while we have a very strong fourth quarter shipments versus last year. And for the year, our industrial organic growth should be at the high end of our framework.
We had another strong quarter on margins of 16.3% up 90 basis points. Big drivers continue to be value gap productivity and simplification and we expect this to continue. Year-to-date margins are up 50 basis points and service margins have grown by 170 basis points year-to-date.
With service orders growing by 10% and strong margin expansion, we are seeing some of the early signs that our investment has started paying off.
We remain on track to growing industrial segment profits by 10% at least this year. We’ve generated $7.2 billion of CFOA year-to-date and are on track for $14 billion to $17 billion for the year. For the quarter, we grew CFOA by 41%.
GE Capital dividends are on track for $3 billion in the year. We will generate substantial CFOA in the fourth quarter driven by much higher industrial earnings and stronger shipments than last year.
We continue to have strong liquidity and balance sheet strength, GE Capital Tier-1 ratio was 12.1%, up 80 basis points and we are targeting buyback and dividends of more than $11 billion for the year.
In addition, we expect the Synchrony split to take GE shares below $9.5 billion by the end of 2015. Our capital allocation continues to be disciplined and balanced.
Now let me turn you over to Kieran Murphy who is the leader of our Global Life Sciences business. This is a strong GE franchise with expanding organic growth, margins and cash flow. Kieran joined GE in 2008 and has 25 years of experience in the life sciences industry.
Kieran Murphy – Vice President, GE Healthcare Life Sciences
Thanks, Jeff. Good morning and thanks for giving me the opportunity to tell you more about life sciences, a $3.7 billion business within GE Healthcare. The healthcare industry is moving towards a more precise diagnosis with more precise treatment to address an annual waste of $350 billion since most around 90% of currently marketed drugs, only work for about 40% of people.
Precision medicine would improve patient outcomes and reduced healthcare costs and this is driving the demand for biologics as opposed to chemical medicines improving efficacy, and reducing side-effects.
We are in a central component of drug manufacture for this industry. Our presence in life sciences extends from the research lab where we helped in the discovery of new medicines to the manufacturing plants where we deliver capacity and productivity.
And then, all the way to supporting clinicians who use our diagnostic agents to make refined diagnosis for tens of millions of patients around the world every year. The expansion of biological medicines for the treatment of diabetes, cancer, rheumatoid arthritis and other diseases drives demand for GE products and services which are embedded in biopharmaceutical dugs.
Today, these drugs make up six of the top ten revenue generating medicines. Also, in the emerging markets, particularly China, there is a growing market need for generic bio-drugs called bio-similars. This has the potential to be a significant growth opportunity over the next five to ten years.
And the next evolution of medicines regenerative medicine, which is based on regenerating cells, tissues and organs in the body is an area where GE is investing for the future. All of this adds up to a market growing at around 8% per year.
We have a broad portfolio of products which has driven into two main areas, bioprocessing and research serving academics and pharmaceutical customers and diagnostics, aimed primarily at clinicians.
For biopharma manufacturing, we have a leading global franchise built on a portfolio of products we acquired with the Amersham acquisition in 2004 and we’ve continued to build value through successful R&D investments and a series of strategic deals resulting in a comprehensive offering that enables start to finish solutions for production.
This start to finish solution creates productivity opportunities for our customers and I’ll return to that later.
Our Research & Applied Markets business has a series of strong brands for protein characterization, purification and analysis, critical to the discovery of these new medicines, once selected, these consumables remain embedded in the scale of drug all the way to an FDA approved manufacturing process.
Within the Diagnostics business, we are the global leader in contrast agents used across the spectrum of diagnostic imaging, including X-ray, MRI and nuclear medicines. We supply customers through a global network of large-scale low-cost manufacturing facilities.
With novel in vitro technologies developed at the GERC we have expanded our service offering to allow researchers to better understand the underlying biology of diseases, which of course in turn reaches the development of the new precision medicines which we then help to manufacture.
And that brings me on to how critical we are to the biopharmaceutical manufacturing industry. Over the past six years, biological medicine sales have grown a 10% per annum to $170 billion, due primarily to the expansion of molecular antibody for the treatment of cancer and increasing demand for products like insulin. Our hardware and consumables are embedded in the FDA approved manufacturing process of these products.
This manufacture of biologics is completely different to the industrial process for making traditional chemical-based medicine. It requires cells to grow, to produce specific protein, which are then extracted and purified. This is an $8 billion market where have got the leading position, all starting from the pharmacy chromatography platform which was part of Amersham.
We continue to build on this products and service platform organically as well as through deals, moving upstream with a series of acquisitions such as WAVE and Xcellerex, which added fomenters and disposable technologies to the portfolio and recently, HyClone Cell Media, part of the $1 billion acquisition from Thermo Fisher. This creates the start to finish solution I referred to earlier.
We enjoyed close strategic partnerships with the leading pharmaceutical companies who depend on us for reliable, high quality supply. The move to biological medicines that has driven double-digit growth over the past few years will continue as expansion in Asia creates new demand for manufacturing capacity.
We are uniquely positioned to help in this expansion or for global pharma companies wanting to localize production in new markets and for local manufacturers wanting to establish domestic production of crucial medicine.
We effectively partner to deliver factory interface solutions. Our FlexFactory and KUBio solutions can provide a complete factory in less than half the time required for traditional plants, 36 months to less than 18 and at a fraction of the costs.
Essentially, we provide a faster and more cost-effective way of creating capacity and access to the emerging markets.
Lastly, we are investing in the cells therapy or regenerative medicine space. An example of this would be the creation of cells for example robust IVDs. The bottleneck right now in this industry is to move from research of small-scale to industrial-scale production and this is an area where we can bring our bioprocessing tools and expertise to enable this revolutionary change in medicine.
It’s an emerging market where we have low revenues today, but we see it having the potential to create $1 billion in the future.
In summary, the Life Sciences business is a high margin, high quality growth business within GE. We are a trusted supplier for the pharmaceutical industry for biopharmaceutical research and manufacturing.
GE Healthcare’s deep relationships with hospitals provides greater access for sales growth and diagnostic and research products. We leverage GE’s great strength in research and analytics from the global research and our software center in San Ramon. We use the global operations and commercial teams across the world to sell into emerging markets.
This is a business where in 2014 we are delivering strong growth, especially in bioprocessing with margins expanding by 100 basis points through business integration and organizations and litigations. And we are generating in excess of $1 billion free cash flow.
Overall, the dealer turn for this business is in the low teens. This is a growing and valuable business within GE and we continue to see healthy pipeline and have great confidence in the future growth of the business. And now I would like to hand over to Jeff Bornstein.
Thanks, Kieran. I’ll start with the third quarter summary. We had revenues of $36.2 billion, up 1% from the third quarter of 2013. Industrial sales of $26 billion were up 3% and GE Capital revenues of $10.5 billion were down 1%.
Operating earnings of $3.8 billion were up 3% in the quarter. Operational earnings per share of $0.38 were up 6%, continuing EPS of $0.34 includes the impact of non-operating pension and net EPS includes the impact of discontinued operations. With a small benefit in discontinued operations this quarter associated with touring of taxes on the Grey Zone payment.
As Jeff said, CFO year-to-date was $7.2 billion, with industrial CFOA of $5 billion and received $2.2 billion of dividends from GE capital. In the quarter , industrial generated $3 billion of CFOA, up $900 million versus the third quarter of 2013. For the year, we’re on track to deliver on the $14 billion to $17 billion framework we provided.
The GE tax rate for the quarter was 18% and that brings the year-to-date rate for the industrial company to 20%. We expect the total year rate to be in the high teens. The GE Capital rate was 2% for the quarter and that was consistent with the low single-digit total year rate that we previously communicated.
On the right side, you can see the segment results. Industrial segment revenues were up 3% reported and up 4% organically. Industrial segment operating profit was up 9% and GE Capital earnings were down 22% on lower assets, the Synchrony minority interest impact and lower tax benefits.
I’ll cover the dynamics of each of the segments in the next couple of pages.. First I’ll start with other items for the quarter. We had $0.03 of restructuring other charges at corporate, $0.02 of that related to ongoing industrial researching and other items as we continue to take actions to improve the industrial cost structure.
We also added $0.01 charge related to the announced Appliances disposition. We’ve moved the business to held for sale and recognized prior service costs related to pension and retiree held for Appliances supporting these.
On a pre-tax basis, that was a $113 million of the total $435 million restructuring and other charges we incurred in the quarter. I want to give an update on industrial cost dynamics.
On the left side, you can see our research and engaged profiles, for the year, we expect to invest about $1.4 billion in restructuring and other charges with about $1.2 billion incurred through the first three quarters of the year.
We had gains to a share of about a penny from the Wayne disposition and so for the year, we are expecting restructuring net of gains to be about $0.09. We’d like to pay back and the operating leverage that we are getting from these projects.
The average payback is about a year and a half, approximately 55% of these projects relate to product and operating costs and the rest is associated with SG&A. On the right side, I’ll give you a quick update on two important costs out events. First on structural SG&A, we’ve taken out $674 million year-to-date on our way to over $1 billion for the year. As a result of these actions, industrial SG&A as a percent of sales has come down steadily.
Year-to-date, we are down 1.6 points versus 2013. We expect to be above 14% for the year driven by an additional $300 million plus of costs out in fourth quarter and strong volumes.
In corporate, we’ve taken actions to reduce our operating cost as well. Year-to-date, we’ve taken out $436 million through simplification efforts at corporate headquarters, GGO and reductions in our social costs. For the year, we expect to deliver more than the $500 million target we established at the start of the year.
As Jeff said, industrial segment op profit is up 10% year-to-date. When you look at industrial including corporate, operating profit was up 17% year-to-date, 19% in the quarter. This excludes the investments we’ve made in restructuring net of gains and the MBCU income we had in 2013.
So I’ll start with the segment summaries, first, power and water. Orders in the quarter of $6.4 billion were higher by 9%, equipment orders were up 8% driven by strong renewables up 42% partially offset by distributed power down 32% and thermal down 8%.
Renewables saw strength in Europe, Latin America, and the US despite the later than expected IRS clarification of PTC eligibility. Distributed power continues to see projects push. We booked about 30% of the units that pushed in the second quarter, but saw some projects pushed to the fourth quarter in 2015.
We believe all these projects are viable, but are located in tougher regions like Egypt, Libya, Angola and Kazakhstan. Thermal orders were down on four lower gas turbines, but higher on a gigawatt basis driven by the large H class order in the US from Exelon.
This brings our total eight units of backlog to 13. We now expect total year gas turbine unit orders to be about 105 to 110, versus 125, driven by disruption in the Middle East and some US customers are shifting from F class to H class technology. This shift is required some of our customers to re-permit the sites and has delayed some orders.
Service orders in the quarter were up 10%. We had strong orders for upgrades and transactional outage volumes as discussed in the second quarter call. And AGPs in the quarter were 18 versus 15 a year ago. Revenue of 6.4 billion in the quarter was down 2%.
With Equipment down 8% and services up 6%. Equipment revenue was driven by distributed power down 35% on 24 fewer units versus last year, partially offset by strong renewables up 18%. Revenue was a little lower than expected, wind units were 150 less than planned driven by late IFRS guidance but we still expect to ship above 3000 units for the year.
Distributed power was also lower by about 10 units as projects were delayed. On gas turbine units we’ve shipped 64 units year-to-date and now expect to ship about 105 in the year versus the 85 to 90 we planned.
Service revenues in the quarter of $2.9 billion were up 6% on higher AGPs and upgrades. From an operating profit perspective, we were at just shy of $1.2 billion, was down 8% driven by negative price and mix from higher wind and lower distributed power, which more than offset cost benefits including SG&A which was down 10%. Margins were down 110 basis points in the quarter.
For the fourth quarter, we expect strong double-digit revenue growth on higher gas turbine shipments, up above 40% and higher wind turbines up above 30% bringing the total year shipments to about 105 on gas turbines and about 3000 wind turbines which is within the original framework.
As discussed on the second quarter call, we still expect total year AGPs to be higher and distributed power units to be lower impacted by the delays we discussed previously.
In oil and gas, orders at $4.9 billion were up 10%, equipment orders were up 14%, up 20% organically excluding the impact of the Wayne disposition. We had strength in Subsea up 84% with strong Brazilian orders, downstream technology up 64%driven by demand in small-scale LNG, partially offset by DNS which was down 12% in the quarter.
Service orders were up 6% where strength in Subsea up 27% and turbo machinery up 8%, partially offset by MNC which was down 8%. Organically, MNC was up 7% with demand for control solutions improving in both industrial and oil and gas applications.
Revenues of $4.6 billion grew 7% year-over-year with equipment revenues higher by 9%, and services up 4%. Operating profit of $660 million was up 27%, on strong cost performance, project execution and a positive value gap offset by lower MNC mix. Margin rates expanded in the quarter 240 basis points. Our outlook for the year remains intact for the business with double-digit op profit growth.
However, we are moderating our view of orders growth from high single-digits to low double-digits to mid-single-digits. We expect orders to grow in the fourth quarter. As you know orders in the space are very volatile and we continue to see some big projects pushed to the right.
Next I’ll do aviation and healthcare, starting with aviation. Travel demand continues to grow with RBK’s August year-to-date up 5.1% domestically, and up 6.3% internationally. Orders for aviation were very strong in the quarter up 30% with equipment orders up 35% and $6.8 billion and services higher by 20%.
Equipment strength was led by $3.8 billion of GE 9X orders for Emirates, Etihad and Lufthansa. We also won $1.3 billion of CFM LEAP orders bringing our program today win rate on the next-end narrow bodies to 78%. Military equipment orders were down 40%, but up 3% year-to-date and are on track to be flat for the year.
Service orders were driven by strong commercial spares up 29% to $30.9 million a day, partially offset by military spares weakness. Revenues in the quarter is up $5.7 billion were up 6% driven by commercial equipment revenue up 22%, military up 8% and services down 1%.
Commercial spares were up 19% offset by military services down 17%. Leverage in the operating profit was strong with 16% growth on better price performance and volume, partly offset by higher GEnx shipments with 65 units in the quarter, up 39 from the third quarter of 2013.
SG&A ex-Avio was down 4% in the quarter and margins expanded to 190 basis points. Overall, David and the aviation team delivered a strong quarter, we expect the aviation business to continue to expand its technology leadership. GEnx shipments will be higher in the fourth quarter and we still expect to ship about 300 units for the year.
In healthcare, orders were up 1%, with better growth in the US which was up 3%, Europe was up 4% and Latin America was up 18%. This was offset by Japan down 12% and the Middle East down 15% in the quarter.
Equipment orders of $2.7 billion were flat on lower Japan and Middle East orders. Our US equipment orders were up 4% driven by very strong imaging and ultrasound orders which were up 10%. We believe the US market was up as well but more modestly.
China ACS equipment orders were up 6% in the third quarter and they are up 11% year-to-date. China growth was slower driven by tender decision delays in public hospitals. In Kieran’s business, Life Sciences, equipment orders were strong, up 15% and service orders for healthcare total were up 4%.
Revenues in the quarter were up 4% with developed markets up 2% and emerging markets up 11% including China up 10%, Latin America up 30%, and the Middle East up 16%. Op profit grew 9% driven by volume and strong cost productivity offset by negative price. SG&A was down 5% in the quarter.
Looking forward we expect US to remain volatile, but our products are performing well. Our position in china is very strong and we believe underlying healthcare demand remains strong in the long run with an aging population, increasing insurance coverage and continued government spend in healthcare.
As you heard today, we have a very exciting life sciences business with a unique position. Simplification will continue to transform our cost structure in this business.
Next is transportation which had a very strong quarter. Orders in the quarter were up 134% led by equipment orders up three times or $2.1 billion. The business took orders for more than a Tier-4 compliant locomotives to be delivered over the next three years.
Locomotive loading is nearing current capacity levels for 2015. Car loads continue to be strong led by agriculture, petroleum and intermodal and network velocity continues to be a challenge.
Mining equipment orders remain weak down 38%, transportation service orders were up 8% in the quarter. Revenues were up 10% driven by locomotive volume with units up 49% partially offset by services down 3% on mining weakness.
Operating profit was higher by 12% driven by local volume and cost productivity and SG&A was down 5% and that allowed margins to improve 40 basis points in the quarter. We are very pleased with the team’s execution on the Tier-4 loco and expect to continue to fill out our order book for 2016 and 2017 and we feel great about our ability to execute against this order growth.
Energy management, the business continues to improve. Our orders in the quarter were down 1% with digital energy down 25%, industrial solutions down 7% on weak European demand and the impact of exiting certain markets and products as part of restructuring.
Power conversion was strong, up 30% in the quarter driven by marine. Backlog grew 9%. Revenues up $1.8 billion were down 1%, op profit of $59 million was up three times on strong cost and restructuring execution.
And then appliances and lighting, the core industry within appliances was up 9% in the third quarter, retail was up 9% and contract up 7%. Revenue in the quarter was up 1% to $2.1 billion with appliances up 2% and lighting down 2%. Appliance revenue was driven by volume up 3%, while strong LED growth of 59% and lighting was more than offset by traditional product declines.
Operating profit of $88 million was higher by 14% on strong productivity and SG&A was down 11% and margins expanded 15 basis points. As we announced in early September, we reached an agreement with Electrolux to sell our Appliance business. We hope to close that transaction in mid-2015.
Next I’ll cover GE Capital. As you know, we successfully completed the IPO of 15% of our North American retail finance business, now known as Synchrony Financial. It’s a publicly traded company, CEO, Margaret Keane and the team will host their own investor call later this morning. We continue to make progress on separation efforts and expect the split out to take place towards the end of 2015 subject to regulatory approval.
In the meantime, Synchrony will remain consolidated in GE Capital Financials. GE Capital’s revenue of $10.5 billion was down 1%, primarily from lower assets partially offset by higher gains. GE Capital’s net income of $1.5 billion was down 22% principally driven by lower assets which includes minority interest impact resulting from the Synchrony IPO and lower tax benefits.
Earnings were affected by the timing of our Nordics consumer platform exit which is previously announced moved from the third to the fourth quarter. E&I of $365 billion was down $19 billion or 5% from last year and down $7 billion sequentially. Non-strategic E&I was down $11 billion or 8% versus last year.
Net interest margin in the quarter was 5% which is essentially flat. GE Capital’s Tier-1 common ratio on a Basel-1 basis remains in a strong position and ended the quarter at 12.1%. This is up 40 basis points sequentially and 79 points year-over-year.
Our liquidity levels are also strong and we ended the quarter with $80 billion of cash with $15 billion attributable to Synchrony. Our commercial paper program remains stable at $25 billion and we have substantially completed our long-term debt issuance for the year at $9.4 billion. On the right side of the page, asset quality trends continue to be strong and stable.
Now I’ll walk through each of the segments. The commercial lending and leasing business ended the quarter with 170 billion of assets flat to last year on book core volume was $10 billion up 5% driven by increases in both the Americas and international. We continued to see strengthening in the US largely in equipment financing with volume up 7%.
The team is staying disciplined on pricing and risk hurdles, and the new business returns on both lending and equipment were largely in line with the first half of the year. Earnings of $617 million were up 29% driven by lower marks and impairments primarily in our corporate air book as well as higher gains and tax benefits.
The consumer segment ended the quarter with $141 billion of assets, up 4% from last year driven by Synchrony. Net income was $621 million, down 31%. As I mentioned earlier,
Synchrony team will cover all the details of their quarter in a call later this morning. Our share of their earnings was $509 million, down 25% net of minority interest and investment in its standalone capabilities.
The international consumer business was down as well from the effect of lower assets which were down 16% year-over-year, consistent with last quarter. In real estate assets of $36 billion were down 9% versus prior year. The equity book is down 28% from a year ago to $12 billion.
Net income of $175 million was down 62%, primarily from non-repeat of prior year tax benefits. In the current quarter, we sold 72 properties from our real estate equity book with a book value of roughly $0.5 billion for $122 million in gains.
In the verticals, GECAS earned $133 million, down 23% from lower assets and tax benefits. Impairments including our annual review completed this quarter resulted in a $197 million after-tax impact, roughly in line with the third quarter of last year. The impairments are driven by value declines in 50 seater regional jets, older-767s and older A320s.
Overall, the portfolio is in great shape and we finished the quarter once again with no aircraft on the ground and zero delinquencies. We do not anticipate any updates in the fourth quarter to the GCAS impairment process. New volume was much stronger at $1.4 billion, up 62% with very attractive returns in line with the first half of the year.
As Jeff mentioned before, we were excited to announce the Milestone acquisition on Monday. The acquisition combines GCAS global reach and leasing expertise with a growing helicopter financing business that will diversify our business and put our capital to work at good returns.
This is in line with GE Capital’s strategy to grow in the mid-market and industrial vertical space where we have deep domain expertise and are competitively advantaged. The deal is expected to close in 2015 pending regulatory approvals.
Energy finance earned $61 million, down 59% resulting from lower assets and gains and higher impairments. EFS volume was up strongly at 152% year-over-year at very attractive returns.
As you look forward to the fourth quarter, we expect GE Capital to be about $1.8 billion in earnings including the gain from exiting of our Nordics business. However, we continue to aggressive work on opportunities to reduce the size of non-strategic portfolio. And these transactions could impact earnings and tax and the tax rate in the fourth quarter.
So overall, Keith and the team continue to execute the portfolio strategy and deliver solid operating results. So with that, I’ll turn it back to Jeff.
Thanks, Jeff. We remain on track for a 2014 operating framework. Industrial segment earnings were driven by sustained organic growth and margin expansion and are expected to grow by at least 10% this year. GE Capital is on track with higher earnings in the fourth quarter, due to the timing of the Nordic consumer finance platform sale.
Corporate is on track as expected and as expected, corporate has been a drag in 2014 because of restructuring investments exceed gains. However, this will be a real tailwind in 2015.
Cash and revenues remain on track and we expect fourth quarter organic revenue to be robust. Despite a volatile global environment, GE expects to have a good fourth quarter and deliver on our 2014 framework. In addition, we are changing the portfolio to position GE for long-term growth.
The GE team has done a good job of both strategic and operational execution. With a big backlog, high levels of recurring revenue and a restructuring program already in place,, we believe that GE will deliver for investors in times like these.
Now, Matt let’s turn it back over to you and take some questions.
Matthew Cribbins – Vice President, Investor Communications
All right, thanks, Jeff, Why don’t we open up and take some questions now?
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