General Electric Company (GE) — Q4 2015 Earnings Call Transcript

Good morning and thanks for joining our fourth quarter 2015 webcast. Earlier today we posted the press release, presentation, and supplemental 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. Today I’m joined by our Chairman and CEO, Jeff Immelt; and our CFO, Jeff Bornstein. Now, I’d like to turn it over to Jeff Immelt.

Thanks, Matt. Let me start with some thoughts on the macro environment and GE’s fit in it. For the last few years I’ve talked about a slow growth and volatile economy. This is still my view. In the fourth quarter across our own large industrial footprint orders grew 1% organically and our backlog is at a record of $315 billion, up 7% organically. Our biggest industrial business, which is power, had organic orders growth of 29% in the quarter. I have a difficult time reconciling this with the mood that is in the markets. Clearly, oil pricing is a concern and will have an impact. But our organic orders growth in the Middle East was up 14% in the quarter. So our economic activity is ongoing. I know there is a concern about emerging markets in total, but our organic growth was up 7% in the quarter excluding Alstom. Our business in China grew slightly organically in the year and backlog grew by 11%. So we are seeing a lot of the economic volatility, but there is still enough business out there for GE to hit its goals. The GE team had a good quarter in a volatile environment; total operating EPS was $0.52, up 27%, and industrial EPS was $0.47, up 27%. Orders were up slightly in organic growth, as down slightly versus a year ago. Total industrial margins expanded by 80 basis points, and 2015 CFOA grew by 8% to $16.4 billion. Industrial profit expanded by 3% organically. We hit or exceeded all of our goals in 2015; organic growth was 3% with 80 basis points of margin expansion leading to 7% organic profit growth. EPS was $1.31, up 17%. We achieved this despite having $0.05 of FX headwind. The verticals hit their plan and capital return $4.3 billion to the parent. Our cash and free cash flow execution was ahead of plan. We returned $33 billion to investors, including the excellent execution with Synchrony. We also executed a massive amount of portfolio change in the year. GE Capital exceeds or is ahead of plan, with $157 billion of signings to date. The impact of Alstom was flat on EPS slightly better than expected. Alstom had an impact on several segments, and Jeff will take you through those results, but on balance we like what we see in Alstom. Last week, we announced the disposition of appliances to Haier for $5.4 billion. This will create an attractive gain and allow us to significantly increase our restructuring targets in 2016. So we’re committed to our 2016 framework in the face of macroeconomic volatility. Now for orders. Orders grew by 3%, which was up 1% organically, and as I said earlier our backlog is $315 billion, up 7% excluding Alstom. Alstom added $29 billion to our backlog. Services grew by 5%, which was up 3% organically, and equipment grew by 2%, which was down slightly organically. Service orders were strong; our power gen service orders grew by 13% excluding Alstom and commercial aviation service orders were up 14%. Healthcare service orders were up 3% and Alstom orders were $2.6 billion. We had some nice wins with Alstom in China on the hydro business, several combined cycle gas turbine power plants with richer GE content, and the Hinkley Point Nuclear Steam turbine in the United Kingdom. On the product side of GE, we also had some solid highlights. Two I’ll call out: power booked 12 HA turbine orders in the quarter and we now have 33 in backlog. In addition, we have another 49 technical selections. And in healthcare, our MR orders grew by 18% in the quarter and our bioprocessing grew by 16% in the quarter. So great results by those businesses. Globally, orders were generally positive, growing 8% in total and 12% in the growth regions. As I said earlier, we had strength in the Middle East and ASEAN and India, and Latin America was also decent. Including Alstom, China was up 15% in orders in the quarter and backlog grew by 16% to $21 billion. Order pricing was up 0.9% in the quarter and we have good pricing momentum in both aviation and power. So overall, our backlog and orders pricing gives us high visibility as we approach our organic growth targets in 2016. So let’s talk about the execution of the team and what you saw on the segment results. Overall, the team executed in a tough environment in the quarter; organic growth was down slightly and for the year organic growth was up 3% with seven of eight segments growing. Service remains steady, up 5% in the year and 4% in the quarter organically. The oil and gas team I’d really like to call out because I think they executed very well in 2015. But the 7% decline in revenue, the organic operating profit grew by 1%. And this is ahead of what we said last year. Our team executed on restructuring; they improved their value gap and they invested in their core franchise. And we expect the team to continue to execute in 2016. Looking at revenue in 2016, let me just give you a few metrics and some things to think about. We primarily ship from backlog so orders and backlog growth matter. In 2015, six to seven businesses grew backlog some substantially; when we do our analytics around convertible backlog and business performance we see a path to 2% to 4% organic growth for ‘16 even with a very difficult oil and gas market. The most robust part of our business is service. Service backlog grew by 16% in 2015 and we expect another year of 20% plus growth in our digital applications. Both of these support sustained growth in services. We had another strong quarter and year-end margins; for the year, our industrial margins were up 80 basis points at the segment level and 110 basis points overall. Services were up 40 basis points and equipment was up 20 basis points. We continue to make good progress on the value gap, up more than $450 million on the year in cost productivity. Mix was favorable in the quarter and in addition we have solid momentum for cost out. Again, due to the higher appliances gain we can do a record level of restructuring in ‘16 to fortify our framework. Specifically, we believe we can execute on an incremental $1.7 billion in the year, which should yield incremental benefits. Last year we discussed new compensation plans that were aligned with investors and delivered results; I’m convinced that this incentivized our team to deliver superior results in ‘15 and we have set our 2016 targets to drive our framework. Our strategy and business model is paying off and we believe we can deliver strong performance in the face of economic volatility. Now for cash; CFOA grew for the year by 8%, industrial free cash flow grew by 4%, and total free cash flow grew by 14% to $13.5 billion. Total year core industrial cash flow ex-Alstom was $12.6 billion, up 3%, and total year free cash flow conversion was 85%, in line with our expectations. GE capital dividends were $4.3 billion for the year and we’re still on track for $18 billion in dividends to the parent in 2016. The balance sheet is very strong and the price for appliances was a pleasant surprise. The business had been improving and there was strong interest in the business; a price of $5.4 billion gives us more than $1.3 billion of incremental cash. For capital allocation, we returned $33 billion in the year including Synchrony and looking at 2016 we’re still on track to return $26 billion to investors in dividend and buyback. So before I turn over to Jeff let me reflect a little on the Alstom results. We’ve integrated too much of revenue, all of the deal-related cost and the impact of the joint ventures all for the first time. There is inherent complexity as we go through, so bear with us, but in general I would say the business and our outlook and our execution are on track and we’re still excited about Alstom.

Thanks, Jeff. I’ll start with the fourth quarter summary. Revenues were $33.9 billion, up 1% in the quarter. Industrial revenues, including corporate, were up 3% to $31.3 billion. You could see on the right side that industrial segments were down 1% reported and down 1% organic. Alstom revenue of up $2 billion in the quarter was offset by $1.3 billion of foreign exchange and dispositions of $700 million. Industrial operating plus verticals EPS was $0.52, up 27%, and that’s driven by industrial up 27%, and verticals flat. The operating EPS number of $0.31 includes other continuing GE Capital activity including headquarter run-off and other exit-related items I’ll cover in more detail shortly. $0.26 of continuing EPS includes the impact of non-operating pension, and net EPS of $0.64 includes discontinued operations. The total disc ops impact was a positive $3.7 billion, driven by the $3.4 billion gain from Synchrony and earnings from the businesses held in sale. As Jeff said, we generated $16.4 billion of CFOA for the year; that’s up 8%. Industrial CFOA was $12.1 billion, down 1%, but up 3% when you exclude Alstom CFOA and taxes associated with the disposition of signaling. The GE tax rate was 5%, bringing the total year rate to 14%. The tax rate in the quarter was driven by the appliances transaction moving into 2016 tax benefits associated with integrating our existing service business with Alstom’s business in Switzerland, higher tax benefits principally on the signaling gain we had in the quarter and legislation making the U.S. research credit permitted. The reported GE capital tax rate in the quarter of 39% reflects a tax benefit on a pre-tax loss. The tax rate for the vertical businesses was a negative 13%, reflecting reduced income at EFS and international tax benefits that will diminish as we complete the GE Capital exit plan. Going forward, as we complete the exit, we expect GE Capital vertical tax rate to be approximately 10%. On the right side of the segment results, as I mentioned, industrial segment revenues were down 1% reported and down 1% organic, with foreign exchange and dispositions offsetting Alstom. The foreign exchange was a $1.3 billion drag on industrial segment revenue and a $163 million impact on industrial segment operating profit. The power, renewable, and energy management businesses were impacted by the Alstom acquisition, and I’ll walk you through the impact on the next page. At the December outlook meeting, we said we would present industrial results including corporate operating cost. On that basis, industrial operating profit for the quarter was down 6% reported, but up 3% organically on strong corporate cost performance. To give you context, organic revenue was down 1%; it was a little over $1 billion lower than we expected. This was driven by power, lower by about $350 million on expanded scope and BOP; aero and reciprocating engines did not close in the quarter, about $400 million in renewables on low wind turbines, which I’ll cover more on shortly; $300 million of softness in oil and gas; and $100 million of softness in convertible orders in our energy management business. Most of the $1 billion was timing, and we expect it to convert in 2016. For the full year, organic revenue was up 3%. What’s laid out on this page is the impact of Alstom on the power, renewables, and energy management businesses. You can see the reported operating profit of the businesses in the first column. The impact of Alstom in the middle column and the operating profit and the Vs excluding Alstom on the right. Power on a standalone basis would have been down 5%, renewables would have been down 54%, and energy management would have been up 4%. The outsize impact of Alstom in the energy management business is due to the JV structure of digital energy in the Alstom grid business. We contributed positive earnings from digital energy to Alstom’s business, which had negative earnings. Remember, this is a 50-50 JV, and we consolidate 100% of the revenue but record only 50% of the earnings. In the case of energy management, the 17% organic V reflects the organic performance for the power conversion and industrial solutions business, which is how we will report organic for this segment going forward. The organic V, including digital energy, would have been plus 19%. In the quarter, the EPS impact of Alstom was break even, with a pre-tax loss of $234 million in the segments and an additional $160 million of deal cost and accounting items at corporate offset by a positive tax benefit. Revenue was $2 billion and orders were $2.6 billion. As we look to 2016, no change to the guidance we gave you of $0.05 of EPS from Alstom. Next, I’ll do the earnings walk as we’ve been doing for the last number of quarters so you understand the dynamics clearly and what’s going on in the earnings. Starting with the first column on the left and working down, industrial operating net income was $4.6 billion and vertical income was $438 million for total industrial plus verticals operating earnings of $5.1 billion. On the other GE Capital line, we incurred $2.1 billion of cost in the quarter. This was driven by restructuring charges, the preferred dividend payment, headquarter run-off, operating expenses, and excess interest cost. We also took an impairment of about $800 million related to the Homer City power plant asset, which I’ll cover more on the GE Capital page. As a result, total operating earnings were $3 billion. Including non-operating pension cost, continuing earnings were $2.6 billion. We had a $3.7 billion of income in discontinued operations principally related to the Synchrony gain. Adjusting for these items, net earnings for the quarter were $6.3 billion. In the center and far right column, you can see the associated EPS number and their variance versus prior year. On the next page, industrial other items from the quarter. We had $0.04 of charges related to industrial restructuring and other items that we take in a corporate. Charges were $567 million on a pre-tax basis, with $160 million of those charges related to the Alstom deal cost and accounting items. We also had $1 billion of industrial gains in the quarter, which equated to $0.08 of EPS at the transactional tax rates. The pre-tax signaling gain was $622 million and the appliance breakup fee was $175 million. Additionally, we sold our embedded controls business in energy management and our clarient business in healthcare. On the bottom of the page, you can see the total year restructuring gains profile. We incurred restructuring charges of $0.12 and had gains of $0.11 for a net charge of a penny for the year. This was $0.02 better than we communicated in December, driven by about a penny of lower restructuring, primarily Alstom-related, and slightly higher gains driven by predominantly tax at the transaction level. For 2016, we expect gains in restructuring to largely offset for the year; however, there will be a quarterly variability in the timing. As Jeff mentioned, we signed the appliances transaction, which we expect to contribute about $0.20 of gain mid-year this year. That combined with some smaller transactions should yield gains of about $0.25 in 2016. We will use this opportunity to continue to invest in improving the industrial margins and cost. This will benefit us not only in 2016 but will position us well for 2017 and 2018.

So let me end by going through our operating framework. This is the framework I showed in December. We’ve no change but increasing our goals for disposition cash. I know a lot happened earlier in the year, but 2015 closes out where we thought it would. So let’s start with organic growth of 2% to 4%. We finished 2015 with $315 billion of backlog; earlier outlined how we achieved those goals even in the face of a tougher oil and gas market. We’ve broad business and geographic diversity and service, which is 80% of our earnings should continue to grow by 3% to 5% in 2016. We had two months of Alstom in 2015 and so far so good; we think our synergies were achievable and with the appliances transaction we’re now looking at the ability to fund incremental restructuring. In addition, this gives us upside to our disposition cash for the year. All of our goals for GE Capital remain on track; our dispositions are a year ahead of plan, capital dividends are the key to returning about $26 billion to you this year and we plan to file for SIFI de-designation later this quarter. We’re acting to get more out of this economy. We’re aggressively managing our cost structure to capitalize on deflation. We have a very strong balance sheet with substantial cash. We have the ability to finance our industrial products, which is a huge advantage. Our diversity in both regions and markets allows us to outperform single-purpose competitors. We can move production to the lowest cost regions and capitalize on currency or excess capacity. We’ve all the elements to help ourselves in a tough economy. Buyback capacity, substantial restructuring funding and services growth and we’ve continued to invest. Our long-term commitments for R&D, globalization investments like Alstom have built a huge backlog. So just to recap some of our highlights for ‘16: double-digit EPS growth, returning $26 billion of cash, Alstom integration, digital execution, there is really a lot of value here in GE. So Matt, now let me turn it back to you for some questions.

Thanks, Jeff. Operator, please open up the lines for questions.

Hi, good morning guys.

Hey, Scott. Good morning.

One of the things that’s changed in the last couple of months is just the severe currency devaluations we’ve seen in some of the emerging markets out there, but your order book in EM seems to be pretty good. I mean are you pricing, can you just give us a sense of kind of current and past? Are you pricing contracts in U.S. dollars, are you pricing them in local currency or is there a mix? Just a little color there?

Okay, maybe I’ll do a little bit on the geographic side Scott and then give you a sense. We had a very strong fourth quarter in the Middle East that was a lot driven by power, pricing actually was pretty good on those transactions for the quarter. I’d say on balance, the pricing we’ve experienced on power, rail, aviation usually shows in the pricing and the backlog and the order book. So I don’t think we’ve seen really any diminution of pricing in the emerging market orders. So you know guys, our stuff is lumpy, so there are big transactions, but I don’t think we see anything. Jeff, would you want to add to that?

Just a couple of things. So what we do in China, there has been very little albeit a little bit more lately. The differences in exchange between the U.S. and China are pretty diminimus; a lot of our businesses that I gave you are dollar-based and then obviously in oil and gas and energy management and a number of other businesses we do work in local currency. And so Brazil, where we’re in Brazil and Europe in the euro, we’ve had a little bit of a currency impact and that’s what you hear us reporting when we give you reported versus organic. On the orders front, I don’t think we’ve seen that big of an impact, and when you look at orders in the quarter particularly in power, orders pricing has been very, very good, very strong particularly on the H turbine, largely because we’re selling out slots.

That makes sense. And then just moving to oil and gas how was $30 oil impacting your 2016 outlook? I guess what I mean is that you have, I mean 2015 was pretty amazing with the cost out and you haven’t seen decremental margins at all in that business and is that sustainable? And are there breakpoints in oil prices where it’s just not sustainable any more to maintain that type of drop-through?

So again, what I would say is that just on a macro commentary, there are still a lot of efficiency opportunities we have in our oil and gas business, both in the supply chain. And so I think what Jeff talked about earlier in terms of the ability to do incremental restructuring is still out there. And then I would just again segment our business into kind of project-based business where we’re still in execution mode and that’s probably 70% or 80% of our total revenues and then businesses like drilling and surface that are probably the most susceptible as oil pricing goes down to $30. We’re trying to stay ahead on the cost curve, and it’s going to be very difficult in the future, and we just need to be flexible at a $30 environment, the one we see today. But that’s a very small portion of our overall oil and gas business.

I would just add, I would just expand a little bit on what Jeff said. So if you think about the business long-term, more contractual and project-based stuff. Turbo machinery, downstream and subsea, that’s about 65% of our revenue in ‘16. And of those revenues, more than 70% of those are in backlog. If you add the M&C business on top of that, which tends to be more flow in convertible. But it’s about roughly 50% exposure to oil and gas and 50% to non-oil and gas. That’s 85% of revenue, and when you add M&C, you’ve got a little bit north of 65% of next year’s revenues in backlog. So to Jeff’s point, the real short-term exposure today anyways we look at is service and drilling, and they are very susceptible to volatility around what they see for convertible demand in any period of time. But it’s 15% of the revenue.

Again, Jeff, I'll come back and -- because of appliances guys we have kind of $2 billion plus of restructuring that wasn’t in our plan when we stood in front of you in December.

So I am going to follow on with that. So the way we think about it within the range of down 10% or 15%, everything else being, we may be at the lower end of the range; we may be closer to down 15%. We came into the year; we told you we had plans to take $400 million a cost out on top of the $600 million a cost out we delivered in ‘15 for a total of $1 billion over the two years ‘15 and ‘16. We are now going after an incremental $400 million on top of that. So now we are trying to deliver $800 million of cost out to 2016, and appliances is an important part of our ability to do that. So we are going to invest more aggressively in 2016 in restructuring the oil and gas footprint that we even did in 2015. So that gives us, Scott, some ability to moderate potentially if revenues are even lower or at the lower end of the range, then we can moderate the impact on profitability.

Yeah, sounds like appliances was timed just right. So good luck, congrats guys. I’ll step off.

Thanks, Scott.

Hi, thank you.

Hey, Julian. Good morning.

Good morning. Just a quick question firstly on Alstom, the core business as you say lost money on the EBIT line in Q4. You’ve talked about $200 million of core Alstom profit in 2016. How quickly do you think the business goes back to profits, or is it sort of a second-half turnaround on the core Alstom business?

I think we expect it -- we are off and running on the synergies as we speak. Having said that, most of those synergies and most of the improvement in the core operations is going to happen with will accelerate over the course of the year. I think we feel very good about the guidance we gave you in December around the outlook for Alstom in 2016 of $0.05 contribution that today feels very solid. Now I’d go back to what we said about 2015 on that call; we came in almost line item by line item virtually right on top of what we told you; we’re a little better in tax than we estimated. But the other elements of the cost in the operations we talked about on that call are exactly where we came in and ended up Alstom in the fourth quarter ended up being essentially break-even with tax or zero drag on EPS. So I think right now we are on course and the benefits and the improvement will accelerate as you would expect over the course of the year.

I would echo what Jeff said, Julian. Look, as you guys can see this is a large complicated transaction to get it integrated. But when we look underlying in terms of customer response and geographic opportunities and things like that, I think this is everything we thought it would be. So now we just got to get out there and execute.

Great, thanks. And then just a quick follow-up on healthcare; the profits there were down I think about 9% in the second half of 2015. You’re guiding profits up in 2016. What is it that’s really swinging there sort of from the second half to the next 12 months?

Look, I think Julian, when I think about healthcare in 2016, this should be low to mid-single-digit organic revenue growth with margin enhancement; that’s what investors should expect in healthcare. I think when you look at the second half of last year, we allowed the business to spend incrementally on NPI to make some changes in their IT business to invest more. So basically I think we allowed them to increase their spending in the second half. That should be opportunities when we look in the future. Better VCP, better NPIs, and I expect healthcare to have a decent 2016.

We’re going to deliver a better product cost profile in 2016.

Good morning, guys.

Hey, Andrew.

Jeff, so can you talk about your ability to grow margin for the company in ‘16? If you look at 4Q, you had 110 basis points of gross margin improvement ex-Alstom despite the declining organic sales. Your value gap and mix give you 100 basis points of that improvement. So given your higher margin services orders are growing faster than equipment and raw material costs are coming down, could you sustain the 100 basis points you saw in the quarter from mix and value gap as you move forward?

So great question. Our goal, what we’ve told forces year-on-year, is we have a target to improve margins by 50 basis points; that’s true as well in 2016. So the geography of where that improvement comes from, I think it will be largely the same. I think value gap will contribute a little bit less in 2016 to the margin expansion. I think variable cost productivity or productivity in general will or product cost if you will will contribute more. And then corporate and SG&A will also contribute in 2016. So we’re still on the 50 basis points march at operating profits and down through corporate costs or industrial margins. But the mix between what value gap contributes and what we get out of productivity is going to change a little bit.

I would also say guys, last year was the first year of our IC plan where we call the AIP. More than half of the businesses have gross margin targets, they all have margin targets. This has been a really good driver of these results, and we think we’ve set the bar appropriate in ‘16 to get the same kind of benefits. And then I would say if you mentioned services growth were equivalent, that’s important actually; there is no question about it. We need a big service business, PGS and aviation to grow and deliver with it because we have these product launches. So we’ve got the H turbine coming next year, we got a little over 100 LEAP engines launching next year, and we got the 2.x and 3.x wind turbines going. So continuing the momentum and services is very, very important to the overall story.

Jeff, if I could just follow up on service for a second, your organic service orders slowed slightly in the quarter from 4Q versus 3Q but still good at 3%. You guys are going at 3% to 5% service growth. Can you talk about the sustainability of your service business, especially in power in the current environment? And how much is digital really helping? It seems like robust growth there.

Yeah, look, I mean I would start again with the digital focus, which is growing 20% not just in power but in other businesses. But we also have very targeted programs in all of our businesses to go after the aged install base. Alstom brings unique capabilities to the power business. Aviation guys, we’re still seeing good revenue passenger miles. There are lots of opportunities for our aviation business to continue to grow. Healthcare is actually, after several years of flat revenue and services, is actually grown 3% or 4% the last few quarters. So we’re very programmatic in the service side. I think we see that continuing into next year with digital being the number one driver. And at the end of the day, I think in an environment like this, this is the bolus for the company, is the installed base.

The only think I’ll add, Jeff, is the upgrade. So we think we’ll do at least 125 AGPs next year in every one of the businesses is really pushing on the upgrade.

Hi, guy. Good morning.

Hey, Andrew. Good morning.

Just a question on restructuring. Now that you have this extra $0.20 from the appliances, I am sure you did have some restructuring built into your number before because you were expecting appliances sale in the middle of the year. But given that the gain brings restructuring and you have a lot more restructuring this year, does that mean that there is more cushion to the numbers or does that mean that the core guidance is actually reflecting more macro headwinds?

Okay. So in our core plan, we expected to drill about $1.7 billion pre-tax of restructuring in 2016. We will double that with appliances. And so we will do a lot heavier restructuring. First of all, we’re going to try to accelerate a lot of what we were going to do in Alstom in ‘17 and ‘18 as much of that as we can actually we’re going to try to accelerate. We’re going to do more as I mentioned earlier in oil and gas and every one of the businesses we’re going to do more around the product service cost footprint of the company. So it does both things; when we spend that incremental money there will be some amount of benefit in 2016; but maybe even more importantly it’s a great base to work from for 2017 and ‘18 and it will help us continue to deliver these margin improvements that you've seen.

I would add, Andrew, look. I’m going to say the same thing today that I said a year ago. Every one of our businesses has a very detailed incentive compensation plan that internally, just like last year, rolls out to more than we talked about externally. And that’s the way we’ve run the place and that’s why we continue to run the place. And I just -- I look at the ability to do incremental restructuring as a good opportunity for us to continue to deliver good results.

And just the follow-up question, are you guys seeing any signs of stabilization in China because that seems to be a big concern; I apologize if I missed your remarks in the beginning.

Yeah, I think for us that the first thing I’d say there is no one China, right? I don’t think macro anymore when I talk about China; I think micro. I think about aviation, healthcare, power, mining; that’s how I think everybody has got to start thinking about China. Now aviation remains super strong, right? I think on the power side it’s going to become a gas more predominantly gas turbine market; it’s been cyclical but I like how we’re positioned in the future in China there. And the third business is healthcare; healthcare has had a tough couple of years, I think the sense of our team is that we feel that stabilizing -- by tough I mean it’s gone from up 10% to 15% to maybe flat to down slightly, right? So our team I think has seen some signs of stabilization there. That to me is the swing or let’s say on China, but aviation is super strong even today.

Good morning, guys. And so maybe following up on Andrew’s question slightly differently, I guess as you go into 2016 and then take a look back into 2015. Industrial EBIT grew very low single-digit this past year, and as we head into 2016 there are a lot of headwinds whether it’s orders down, mix is becoming a bigger headwind and then you’ve clearly oil and gas pressures are intensifying. And so what I’m trying to understand is how much of the incremental improvement in industrial segment EBIT is going to be driven by the restructuring actions that you’re taking?

Well, let me go back and try to help you with that in terms of what 2015 was. So in the fourth quarter our restructuring efforts delivered a little over $220 million of benefits. And those restructuring have started in ‘14 and some of them were executed in 2015, etc. And for the year that was about $1 billion of value, if you will, against margins. In 2016, we’ll roll forward and based on what we did in ‘15 and the benefits realizing in 2016 and the incremental spend in 2016. I mean everything else being equal, we would expect that more and more to flow to industrial EBIT in 2015. And yes, it’s part and parcel about remaking the competitiveness of this company around products and service cost and it’s critically important and our track record I think over the last couple of years of these businesses delivering back to margin improvements based on the restructuring spend, I think it’s been on balance very good.

Yeah, no that’s fair, and it has been good and it clearly should help provide a tailwind for 2017 and 2018. Maybe one follow-up question, Jeff, just a reminder on $35 billion in the composition of the $35 billion dividend from the asset sales and leverage and has that changed at all just given the asset prices have come down a little bit at the start of this year?

No, so key thing is the team have done an absolutely remarkable job executing against this plan; as you know, Jeff mentioned I’ll just reiterate a little bit just to give baseline everybody $157 billion of signings, $104 billion of asset closings in 2015. In 2016, we’ll sign something on order of magnitude of another $50 billion in deals; we’d expect more than half of that to happen hopefully here in the first half of the year and we’ll close -- we’ll get wire transfers for about another $100 billion of closings in 2016. And so far we’re tracking slightly better on a price of intangible book than what we presented in April of next year and we think everything else being equal, as we sit here today with $50 billion of signings to go all which are in process that we’re going to end up at or maybe incrementally slightly better on the price to tangible book when we get through the end of this process hopefully at the end of 2016.

Okay, thanks guys. I’ll get back in the queue.

Great, thanks.

Yes, thanks and good morning.

Hey, Steve.

Hey. So you covered a lot of ground, but one of the things on page four, the simplification of SG&A cost being flat in the fourth quarter just maybe run us through the dynamics there in terms of it coming down off of the prior savings you’ve been seeing in quarter after quarter there?

Sure, so we had $224 million of SG&A structural cost out in the quarter that was down 7% year-over-year. For the year, we’re down about $800 million or about 6%. And the reason you see it is not contributing to the margin performance is because that $224 million came out at about the same rate as volume came down in the quarter. So it’s not that we didn’t get cost out; we absolutely did; it’s not that we lost any momentum. $224 million is about the middle of what we’ve been each of the last four quarters, actually probably closer to the last eight quarters; it’s just the volume was down and so it didn’t contribute. We expect -- I think we said in December we expect to improve SG&A to sales in 2016 and so you should expect it to show up on that line is contributing to the margin expansion in 2016. As it did for 30 basis points this year.

Okay, sounds good. And then if I just want to clarify in the pricing again when you point to the 3.8% in power and you talked about the HA turbine driving a lot of that, you guys are -- how are you thinking about like-for-like pricing versus mix? Is that HA is all like-for-like pricing if not driving the mix?

Yeah, that’s all like-for-like.

Okay, all right.

I was just going to say I think what the team has done in this HA launch is pretty remarkable. So all the growth in the heavy-duty gas market is this class of turbine. The gigawatts that get added over the next couple of years -- 75% of that’s going to come from this class of turbine. They’ve gone from no share to a very high level of share and this is about $300 million of price in the quarter on the H and it’s effectively we’re selling slots out. So it’s been a terrific story.

Okay, I’ll pass it on. Thanks guys.

Thanks Steve.

Good morning, how are you?

How are you?

Great. Hey, just back to kind of the whole restructuring dynamic and kind of understanding the bridge into 2016. So I think your guide for ‘16 roughly implies about $19 billion in segment op if we use the December construct. So just building off $18 billion in 2015 with $1 billion in restructuring savings and Alstom of $600 million, is that how we should be thinking about it so you have a kind of core erosion elsewhere in the portfolio of $400 million to $500 million?

I don’t think so, Jeff.

I don’t have that reconciliation in front of me. We’ll get back to you on that, but here is how we thought about the bridge: When we go from ‘15 to ‘16 we’ll get incremental restructuring savings; as a V, we earned $1 billion of restructuring savings in ‘15, we think we’ll be better there in ‘16. But it won’t be $1 billion better than it was in 2015. We’ll get margin expansion and organic growth of 2% to 4%, and the only decrement if you will, as you describe it, is we are overcoming the launch cost and the launch margins associated with the LEAP and the H, the wind turbines, etc. So we will grow our profit next year. I don’t have the bridge exactly in front of me at the moment.

But segment-by-segment power is up ex-Alstom. Renewable is up ex-Alstom, aviation up, healthcare up, transportation I think we said down slightly, energy management up. So segment-by-segment Jeff I think attracts the positive operating profit growth for next year.

Thank you. Good morning, everyone.

Hey, Deane.

Hey. Just had a couple of clean-up questions here. Just to go back to the appliances deal, we’ve gotten a lot of questions about this that the deal you struck with Haier is significantly more favorable than the Electrolux gain of $0.20 versus $0.06. How do the deal all come together? I know they are now directly comparable. But just give us a sense on how it played out?

Again, Deane, I think we were following the process for Electrolux until December 7th. So that kind of ran its course; that gave us the ability to kind of look to see what other outcomes would be important for the business. There was a tremendous -- after December 7th, there was a tremendous amount of interest in the business. I think what we have to keep in mind is that the EBITDA of the business is better over the -- while we were in the process. The multiples in the industry improved while we’re in the process. And I think what we always knew was true about the appliance business is that it had a favorable position in the North American market that was valued by people on the outside and that’s what we saw in the 30 days kind of post for December 7th. I would add, Deane, we wanted to move quickly because the business had been for sale for two years, and there was just a real reason for us to kind of get this transaction, and we’re pleased with the way it turned out.

Yeah, congratulations on that. And just a last question from me, I know you’re out of the quarterly guidance business, but given the expectations of the higher restructuring and they won’t be time with gains. What are the first quarter dynamics look like with regard to gains in restructuring?

So today we think we’re going to have about $700 million of restructuring in the first quarter. We’ll have some very modest gains in the first quarter. So we’ll have naked restructuring in the quarter of between $600 million and $700 million pre-tax in the quarter. And do you want me to give full first quarter? So here is when I’d say is when you look at the profile for the year, when we talked about gas turbines and power systems, I mentioned the back that a lot of our volumes were in the second half of the year. The first quarter in the power business we’re going to be down significantly on gas turbines. Last year we had the tail-end of Algeria and we had some Egyptian shipments in the first quarter. So even though we’re going to be up on shipments year-over-year for the total year for power systems, the first quarter is going to be light on gas turbines year-over-year.

Thanks, Jeff. Operator, please open up the lines for questions.

Hi, good morning guys.

Hey, Scott. Good morning.

One of the things that’s changed in the last couple of months is just the severe currency devaluations we’ve seen in some of the emerging markets out there, but your order book in EM seems to be pretty good. I mean are you pricing, can you just give us a sense of kind of current and past are you pricing contracts in U.S. dollars, are you pricing them in local currency or is there a mix, just a little color there?

Okay, maybe I’ll do a little bit on the geographic side Scott and then give you a sense. We had a very strong fourth quarter in the Middle East that was a lot driven by power, pricing actually was a pretty good on those transactions for the quarter. I’d say on balance the pricing we’ve experienced on power, rail, aviation usually those show in the pricing and the backlog and the order book. So I don’t think we’ve seen really any diminution of pricing in the emerging market orders. So you know guys our stuff is lumpy so there is big transactions, but I don’t -- we don’t see anything. Jeff would you want to add to that?

Just a couple of things, so what we do in China there has been very little albeit a little bit more lately the differences in exchange between the U.S. to China are pretty di minimus, a lot of our businesses that I gave you are dollar based and then obviously in oil and gas and energy management and a number of other businesses we do work in local currency. And so Brazil where we’re in Brazil and Europe in the euro we’ve had a little bit of a currency impact and that’s what you hear us reporting when we give you reported versus organic. On the orders front I don’t think we’ve seen that big of an impact, and when you look at orders in the quarter particularly in power, orders price has been very, very good, very strong particularly on the H turbine, largely because we’re selling out slots.