General Electric Company
Q2 2006 Earnings Call Transcript

Published: 14 Jul 2006

[Operator:]

Good day, ladies and gentlemen, and welcome to the General Electric second quarter 2006 earnings conference call. At this time, all participants are in a listen-only mode. My name is Michelle and I’ll be your conference coordinator for 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, Dan Janki, VP of Investor Communications. Please proceed.

[Dan Janki:]

Michelle, thank you. We would like to welcome everyone. Joanna and I are pleased to host today’s earnings conference call. Hopefully you saw our press release that went out at 6

[Jeffrey R. Immelt:]

Dan, thanks, and good morning, everyone. I just want to start off, again, I think we view this as a very good quarter for the company. I’ll start by talking a little bit about the environment. In terms of tailwinds, our economy and the markets for our products remain very strong, and we’re seeing good activity across almost all of our segments in GE. The changing energy landscape that we’ve been dealing with the last two years or so has really been more of an opportunity for the company. We can capitalize on some of the technical leadership we have in areas like rail and energy, aviation business, and that’s helped our major equipment businesses. We’re seeing good growth around the world, particularly in emerging markets, where we grew 18%. Lots of liquidity in the capital markets, a good risk environment and again, our assets and balance sheets remain very strong. The headwind, we’ve been dealing with inflation for the last two years. We continue to deal with that, in terms of both interest rates and commodities. In terms of specific business challenges, clearly plastics in a time like this is a much tougher environment. We’ve seen that in the last two quarter. NBC, our expectations there are on plan and we see some good momentum as we enter the second half of the year at NBC Universal. From a corporate standpoint, we continue to fund a pension earnings decline and our increasing funding and restructuring as we look at the second half of the year and into 2007. We think we are achieving a good solid, excellent performance in this environment and feel good about how the company is positioned for the second half of the year. If you go to the next page, just some of the key performance metrics for the company. From a growth standpoint; 17% orders growth, 9% revenue growth, 12% asset growth, so pretty strong overall for GE across again most business segments. Earnings per share were up 15%, which was in line with estimates -- and again, very strong earnings growth for the company. Return on total capital was up 200 basis points to 17.6%. This is something we have spoken a lot with investors as being a priority for the company and we are seeing great progress there. Our margins were down slightly, 50 basis points. A lot of good work inside the company was offset by a drag at NBC Universal and plastics, but that is a big priority and we see some gains there in the second half of the year. Cash is very strong, up 78%, consistent with what our expectations were. One of the key strategic priorities for the company is to sustain out-performance through the cycles, and we think these metrics are in line with that strategic imperative. If you go to the next page, just an update on some of the long-term strategies that the company is executing on. Our focus, number one, is to continue to build great businesses. In the quarter, we invested in our water business, our healthcare business, and NBCU. Our growth platforms grew revenues 18%. We exited the insurance solutions business, which was something that we considered to be a big strategic priority for the company, and announced the sale of GE Supply as we continue to reposition our industrial assets. Second is reliable execution. We had five of six businesses with segment profit growth at 10% plus. Infrastructure orders are booming. NBCU turnaround is on plan. We have solid financial service performance. Again, the one negative was operating profit leverage, which turns in the second half and is a key focus for all of us. Third, common growth initiatives. We saw great organic growth, which I will go into a little bit more detail, and our important service revenue grew 12% with long-term service agreements at almost $90 billion. From an organizational standpoint, we are on track for $400 million of synergy this year and we are seeing good improvements from enterprise selling in terms of having better market facing organization. We continue to execute and build long-term value in the company. We are happy with the performance and the update in the quarter. The next page, you know, the big strategic initiative that we have got going inside the company right now is “growth as process”. We have hit our sixth straight quarter of 8% organic -- or two to three -- organic growth that's two to three times GDP. It was 8% in the second quarter. What we do is talk about the elements of this initiative, led by great technology and services. We really have a strong pipeline of new products, which we think positions us well for the second half of the year and onto 2007. Our backlog is at record highs. We have equipment up 28% and CSAs again at a very strong level. Our imagination breakthroughs will deliver about to $2 billion to $3 billion of internal revenue. I just picked off three of them today. Our Hispanic Media share is up 11 points, our Monogram appliance growth is up 13%, and our hospital equipment financing asset growth is up 33%. On commercial excellence, we continue to drive incremental growth there. Our Ecomagination product line orders are up 20% in the second quarter. The Olympics are on track for $700 million of orders -- this is above and beyond the performance of NBC. This is the industrial orders that we expect to get around the 2008 Olympics. We continue to drive process improvements with our key customers and using that process to gain share. We have 30 new showcase events delivering customer impact. This continues to be a big initiative inside the company around their promoter’s score. Our global growth is very robust and developing country growth is 18% for the quarter. We continue to drill this inside our leadership team as we look at where we stand. The goal is to have sustainable and visible and valuable growth, and we think that is what we are executing on. Again, we think six straight quarters, and we continue to have a pretty good view that is going to continue in the future. With that, I am going to turn it over to Keith to go through the financial details of the quarter, and then I will be back to wrap it up later.

[Keith Sherin:]

Thank you. Let me start with growth. Second quarter orders continued very strong, $22 billion across the company, up 17%. It is a fantastic result for us, bodes well for the future. If you look at the pieces on the left side; major equipment, over $8 billion of orders, up 33% in the second quarter. We continue to remind investors this is lumpy as these orders come in, in terms of timing but this is another terrific quarter. If you look at the businesses, aviation, for example, is listed as favorable. The orders in aviation around the world are up three times. The second one is energy, up over 40%; oil and gas up over 25%; healthcare I will cover when we get to the healthcare business, up 4%; and transportation -- it shows in the quarter it is down year over year, but even transportation year-to-date is up 21%. Those guys -- I will talk about the financial results -- they are just having a great year and they are sold out. In the middle is services, $7.5 billion, up 13%. Having double-digit services growth is terrific for us in terms of profitability. You can see the business results, strong double-digits across all the segments. Aviation is up 5%, and that's really got two elements to it. First, the commercial services businesses is up 10% and the military services business is down in the second quarter, dragging that down to 5%. Year-to-date, up 17%. Overall, in infrastructure, close to $6 billion, the services business up 13%. Then on the right side, flow business, close to $7 billion of orders, up 8% in the quarter. Again, this is a good sign of broad global growth. You can see the numbers down around the different parts of the world. U.S. strong up 9%, Europe up 4%, Asia up 6% -- good global economic activity. When we see orders overall across the company up 17%, this is just a terrific economic performance by our origination teams. Next I'll jump into some of the core indicators for financial services. The left side of the chart is about margins for our financial services business. If you look at the blue bars, these are net revenue or contributed value, so it is our total revenue less the interest cost as a percent of our average assets. Basically, you can see that year-over-year we are down about 16 basis points across all our financing businesses. The right side bars, the green bars, are risk adjusted. What we do is we take our net revenues less our losses, and you can see that despite the fact there is a lot of liquidity in the market, our loss performance has just continued to decline. The quality of the portfolio is in great shape. As a result, our risk adjusted margins are stable, and then we are able to improve our profitability with both productivity and volume. We have a big focus on risk adjusted pricing. On the right side you can see the quality of the portfolio. You look at 30-plus day delinquencies. They continue to show the great performance in our portfolios. The consumer finance delinquencies are up 7 basis points. That is basically flat with our global mix. Equipment financing delinquencies are down slightly, again basically flat. It is about as good a time as you can get for the quality of this portfolio based on our global markets. On the bottom right, utilization for the equipment services business also shows continued strength in the economy. If you look at utilization of 87% in the quarter -- Penske, Railcar, Trailers, they are all up slightly from Q1. The portfolio here continues to be in great shape. Jeff mentioned that we are not satisfied with our operating profit rate in the second quarter, and I wanted give you a chart to show the details of that and, more importantly, the outlook for the rest of the year. Before I get into the percents, I just want to be clear -- we are growing our operating profit dollars but for our own internal goals, we also want to drive to improve the rate. On the left side, you see the rate went from 15.4% in the second quarter last year down to 14.9% this year. It is down 50 basis points and it is really four simple drivers for us

[Jeffrey R. Immelt:]

Thanks, Keith. Just to wrap up on 2006, what I want to do is just kind of recap and give you a sense of how we think about the company going forward. If you just go down to businesses, infrastructure on track for 15% plus operating profit growth. Again, good momentum in the second half, as Keith outlined with a lot of equipment backlog shipping and better service growth. If you look at Commercial Finance, Consumer Finance and Healthcare, all just will continue to stay on track and all have good momentum. In Industrial, we should be on track even with plastics being below the expectations we had a year ago, but other parts of the segment outperforming and doing quite well. Then, as we talked about in NBCU, it has all been pretty much what we had forecast for the year and we see some positive signs at NBCU. As we look at the third and fourth quarter, I think we should be on track. If you look at the total segments, the businesses should be up 15% for the year, and we feel that the other pieces of the elements we gave you last year are all pretty consistent. If you look at the company going forward, clearly all of us see what is going on in the broader, macroeconomic sense and what is going on around the world, but we have really built the company to be a diversified company that can deliver through the cycles, so we are feeling good about the company’s position in the world we see today. We are confident in the range that we have given you for the third quarter of $0.48 to $0.50 a share, up 12% to 16%. We also feel like we have a pretty good visibility for Q4 that has earnings per share of 13%to 16%. We are not going to change the total guidance for the year, but we have a good sense that, based on the backlogs that we see, based on the way we run the company and consistent execution, that we feel good about delivering on the commitments we have given you for the second half of the year. Just to wrap up the summary, from an environment standpoint, we think it’s still solid for GE businesses. We have not seen any declines in order rates and continue to see good momentum. Our financial performance is on plan and consistent with expectations. Our strategic execution, we continue to do what we say we are going to do around the portfolio. The growth initiatives we believe have great momentum. When you look at six straight quarters of two to three times GDP, and I take a very good perspective on Q3 and Q4 as we look out on the year. So a good solid quarter in 2Q of ’06, and we think a very good view for the second half of ’06 as we go forward. Dan, let me turn it back to over to you.

[Dan Janki:]

Great, thanks, Jeff. Michelle, we would now like to open it up for questions.

[Operator:]

(Operator Instructions) Our first question comes from Deane Dray of Goldman Sachs. Please proceed.

[Deane Dray:]

Thank you. Good morning, everyone. A question on the ’06 guidance, $1.94 to $2.02. What has to go right for you to achieve the high-end of the guidance at this stage of the year? It sounds like NBC is playing out close to expectations, but Plastics is a little bit worse. What would it take to get you back to the upside of that range?

[Jeffrey R. Immelt:]

Deane, I would say to be at the high-end of the range, we would have to see some improvement in plastics. Again, we just want to continue to see the way that the NBCU turnaround takes place through the rest of the year. So I think it is very consistent with what we talked about at EPG in terms of what drives the high-end of the range. I want to go back to kind of the way I want you to think about the company. The way I want you to think about the company is real confidence in delivering on what we said we were going to do. I think when you look at the $0.48 to $0.50, the way we described the quarters in the beginning of the year, I think our confidence is very high that these are good numbers and that we can deliver on them.

[Deane Dray:]

Jeff, one of the comments you made at the EPG conference recently was that you felt as though NBC has turned the corner to where it could be a positive contributor to earnings in ’07. Is that still a reasonable expectation?

[Jeffrey R. Immelt:]

Yes. Deane Dray - Goldman Sachs. Very good. Last quick question, on pension for ’07, is it too early for your modeling expectations where that would be flat? In other words, that $0.04 headwind goes away?

[Jeffrey R. Immelt:]

Deane, again, it is too early because those rates unfortunately are not finalized until you see what the discount rates are going to be at the end of the year. Those are set actually at the end of December, based on bond cash flows, estimating our outflows in the pension fund. A good proxy is the 10-year AA bond. If interest rates were frozen today at what they are for the end of the year, that should level off. Again, we have to see where those interest rates go and what they look like at December 31st. If they stayed where they are now, that would level off for us.

[Deane Dray:]

Thank you.

[Operator:]

Our next question comes from the line of Peter Nesvold of Bear Stearns. Please proceed.

[Peter Nesvold:]

Good morning. First, a question on behalf of Ann. What is your outlook on the restructuring actions in the back half of this year? Which businesses are you focused on primarily? Are your expectations discounted into this business segment, or are they at the corporate item line?

[Jeffrey R. Immelt:]

Basically, when you look at restructuring for the second half of the year, we are going to be focused on things that give us the biggest payback. We have some things in the industrial segment where we are able to get a good payback. We have some things in the infrastructure segment where we are able to get a good payback. Those would be the two places that you probably see that activity going on. We also have the early retirement programs that we run all the time, which are pretty much based on wherever our union employees are in the U.S., so it is spread across the industrial and infrastructure principally, and those activities are both in the businesses and a little bit at the corporate segment. It’s hard to split up for me today.

[Peter Nesvold:]

But has your planning here accelerated since the beginning of the year?

[Jeffrey R. Immelt:]

There has been some additional thought about some restructuring, certainly in the second quarter we did about $45 million, as I said. As you look at the total year estimate we have here, it could be as much as $0.02.

[Peter Nesvold:]

For the full year?

[Jeffrey R. Immelt:]

For the full year. Again, that is related to the page here I talked about, the corporate benefits and uses.

[Peter Nesvold:]

Okay, great. If I could ask a quick follow-up question, it is a bit granular, but the timing of the Penske sale, the amount of it, it seemed a little not intuitive. I mean, a 9% sale, the leasing cycle seems to be pretty strong. It was a little late in the quarter. What were the drivers behind the timing and the size of that sale?

[Jeffrey R. Immelt:]

We have been working with obviously John Rice on the Industrial segment and taking a look at where are opportunities to redeploy capital out of industrial. Strategically, if we can invest in faster growth areas, we would. We were approached by Penske, who was looking to improve his ownership position in the asset, and we came to an agreed solution. If you look at our press release, what we talked about is that ultimately, over time, we would like to have that partnership kind of go to 50-50 based on both parties. We will work to that over time. Really, it is an ongoing program when you look at the industrial businesses and everything that John has to look at opportunities to redeploy capital into faster growth areas, and we will continue to do that.

[Peter Nesvold:]

Thank you.

[Operator:]

Our next question comes from the line of David Bleustein of UBS. Please proceed.

[David Bleustein:]

Good morning. Keith, you touched on the Japan rate caps. What would the impact be if Japan cut its rate cap down to, call it 20%?

[Keith Sherin:]

I do not have a specific number on that. As I said, the business made about $100 million in the quarter. It has a good ROE. What we would have to look at is the impact today from somewhere in the high 20’s down to whatever they put it, and in between here and there we are going have to continue to focus on productivity. We are going to have to take costs out. We are going have to do more risk-based pricing. We are looking at other business development activity. There are a lot of options we have as you look forward over time. As I said, that probably will not impact. I mean, there is a lot of negotiation going on with the government and the financial industry players over there. That probably will not happen until the second half of 2007 or early 2008. The good news is we have a lot of time to look at it, work on it and be able to proactively deal with it.

[David Bleustein:]

What is the current asset base over there?

[Keith Sherin:]

I will have to get you a number on that, David.

[David Bleustein:]

Okay. Shifting gears to NBC, what was the total comparable pricing for the current up-front season? You mentioned the total up-front was up 0.5%, but what was the, if you had to use an apples-to-apples pricing number?

[Keith Sherin:]

It is hard to split it. On prime, it was down right around 5%, I think, on the CPM’s. On cable we had places that were up. Overall it was down a little bit, but again, a couple of things that helped us there. Number one, we had the NFL. Number two, we had our digital strategy, where we pulled a lot of programs in and that helped us to be able to get up slightly on the up-front in total. Number three, we had all the great performance across the cable and other day-parts and late-night. So prime was still a little pressured on CPM. I think we are probably right now at parity with other networks on CPM’s, and that is good news as we look going forward. We can deliver on our schedule.

[David Bleustein:]

Okay, good. Just one follow-up…

[Keith Sherin:]

Jeff, anything on the…

[Jeffrey R. Immelt:]

Yes. David, the only thing I was going to add to what Keith just said is we do not need the prime time network to be big-time positive next year for '07 earnings to be up at NBCU, based on what the business model is. I think what Keith talked to, which I think is encouraging, is the rest of NBC Universal is performing very well right now, so that gives us good momentum as we look at fourth quarter and '07.

[David Bleustein:]

Okay. Two other little ones -- the Nielsen ratings on commercial spots, do you think that is going to have any impact?

[Jeffrey R. Immelt:]

Too soon to say, but I think it is inevitable. I think it is kind of the way we have done our own business planning. It comes back to you have to have good content, and that is what our business model has always been about.

[David Bleustein:]

Finally, Keith, the GE and GECS expected tax rates in Q3, should those equal the full-year rates?

[Keith Sherin:]

That is our current forecast, yes.

[David Bleustein:]

Thank you.

[Operator:]

The next question comes from the line of Jeff Sprague of Citigroup. Please proceed.

[Jeff Sprague:]

Thank you. Good morning, everyone. Can we just explore this operating leverage question a little bit in more detail? First, the comment that service and products come into parity -- is that something in particular accelerating or decelerating to bring things into balance, or is it just kind of now lapping the tough comparisons in the product side?

[Keith Sherin:]

You know, I was talking about infrastructure. If you look in the second quarter, the infrastructure product revenue rates were up close to 20% and the services revenues were up around 8% to 9% in total across the infrastructure. So you know, you have got a 2X factor here on equipment delivery growth versus revenue on services. Now, in the second half in infrastructure, the equipment deliveries continue at this great pace. The difference is that you had good equipment deliveries that make it a little more comparable in the second half of last year. For us, it is not a deceleration of continuing to build the install base -- it is just a different comparison in terms of service and equipment mix, Jeff.

[Jeff Sprague:]

Then, just on the product side, are you starting to get operating margin leverage in the product piece of the portfolio, or are you still working through some tough things out of backlog, et cetera, that are actually holding back product margins?

[Keith Sherin:]

No, it varies by business. I think if you look at a place like the transportation business, you can see what we have done with the new product on the EVO and you can see that in the leverage. We went out with a new product, we met the fuel specs, we won a tremendous amount of share but we did not have the product costs where we needed it to be for ultimate profitability. Now we are going down the learning curve as we deliver those locomotives, and you can see the results. I think if you look in energy, we are still dealing with some tough comparisons on gas turbines versus units that had a little more margin than we have today. Pricing and energy and gas service in the quarter was down about 3%, so that creates some margin pressure for us in the energy business. Going forward, pricing on new orders was down about 2%, so that is going to continue to be competitive. On the other hand, you look at wind units, pricing was up 11% and you can see that wind revenue growth. So it varies by business, I think. We have a company-wide focus on it. Certainly all of us are together looking at the top 100 product managers who generate the most margin in the company. We are looking at our new product introduction process and our margin process, and we have a big focus on it.

[Jeff Sprague:]

Just an unrelated follow-up on the consumer. The delinquencies look stable. Are there any other little warning signs, like smaller average payments or anything like that, that shows any early signs of stress out there?

[Jeffrey R. Immelt:]

We have not seen it, Jeff.

[Keith Sherin:]

We really have not seen it, Jeff, and we are watching it obviously every day and right now, the portfolio quality continues to be just terrific and it is globally consistent.

[Jeff Sprague:]

Great, thanks a lot.

[Operator:]

The next question comes from the line of Robert Cornell of Lehman Brothers. Please proceed.

[Robert Cornell:]

Thank you. I do want to follow-up a little bit on the OP leverage issues that came up. You guys have been driving the growth strategy and getting the organic growth. You mentioned, of course, NBCU, plastics and the product mix Keith just mentioned. I was wondering if in fact you are seeing that it is costing more in the aggregate to grow the company maybe than you anticipated. You mentioned the R&D spend on GENx. Maybe give a little perspective on that in terms of the total cost to get the growth at what are pretty attractive rates.

[Jeffrey R. Immelt:]

You know, Bob, I do not think so. I think as Keith went through it, that there really are three specific factors that impacted OP profit rates in Q2, which is NBCU, it is plastics and there is product and service mix. I think if you look at G&A as a percentage of revenue, it is going to be down probably 100 basis points this year. We will still get probably 4% total cost productivity for the company. Clearly there is inflationary pressure. [The price on] plastics fuels it. That is going to cost us a little bit this year. I would say there have not been any surprises there. I think this gets unwound and becomes a tailwind in the second half of the year.

[Robert Cornell:]

On Healthcare orders, you mentioned ex China, they are up 7%, which still seems a little light. Maybe you can give us a little more color around that.

[Keith Sherin:]

If you look at Healthcare orders overall, total was up 6%, equipment was up 4%, ex-China is up 7%. A couple things going on. First of all, pretty broad strength. Ultrasound was up 18%, Medical Diagnostics were up 13%, Digital X-ray was up 19%. [ET] was down about 15%. The problem we are comparing to is just remember the tremendous growth we had of VCT last year. We had a 29% growth in VCT, but we got tougher comps, given that the CT orders were up 50% last year in the first half. We are comparing to some pretty tough orders periods in CT. We are still doing a great job, though. When you look at revenue on CT, the sales were up 4%. We sold almost 200 VCT's in the second quarter, up 50% from last year and the backlog is still up 24%. So orders are down, but we are going to work off this backlog for a little while. We are staying at the high end there. MR was down about 4%. It was pretty much flat ex-China, and we are just doing a great job with HDMR. The backlog is up 50% and just about every MR that was ordered, 1.5 and 3T, had HD on it. Overall services orders up 15%, Biosciences up 8%. We feel pretty good about it. I think we are doing a tough comparison on CT and MR a little bit, but we feel good about the technology and the position we have in the backlog. It is something we are watching but there is pretty broad strength there, I would say, Bob.

[Robert Cornell:]

One follow-up question. I think I am hearing that GECS, NBCU up in earnings next year, given the performance in up-front and the outlook for cable and other things. Is that what I am hearing in terms of operating earnings, '07 relative to '06? Is that what I am hearing?

[Jeffrey R. Immelt:]

From NBCU, Bob?

[Robert Cornell:]

Yes.

[Jeffrey R. Immelt:]

You know, that is the -- the feedback I gave you at EPG is still the sense and the drives that we have for NBC Universal going into next year. Again, I think what Keith said -- we are committed to the business. If you look at the pieces, we feel that the up-front and the buzz around the primetime is going to allow us to stabilize the network, which is really all we really had to do, given the other momentum we have in the rest of NBC Universal. That is how we are looking at it.

[Robert Cornell:]

Okay. Thanks very much.

[Operator:]

The next question comes from the line of Nicole Parent of Credit Suisse. Please proceed.

[Nicole Parent:]

Good morning. Not to beat a dead horse on the leverage point, but how should we think about the service by business, particularly in infrastructure ramping, as we look towards the end of the decade and how you think it will impact margins? Given the strength of rail deliveries, we would expect service to continue to be very strong. Energy, you have had portfolio diversification -- can you remind us what we would expect for service on oil and gas and when? Water -- Dave has talked about the service model at water being a little bit different than the traditional infrastructure, but over the next couple of years, we should see service get stronger, right?

[Keith Sherin:]

I would stick to the core businesses, Nicole. You look at Aviation, look at the install base we have built. You look at the Energy business and the install base we have built. You look Oil and Gas the same way -- those are really high calorie service businesses. I think if you think about Transportation, that also has a terrific service business. The Wind business does not have as much service with it, quite honestly, and the Water business is a little different model for us. Take those core industrial infrastructure businesses -- we have revenue that is growing faster than the average for the company, higher margins and lower capital, and we expect to book $200 billion of services revenues between now and 2010, at 35% plus kind of margins.

[Jeffrey R. Immelt:]

I would say, Nicole, if anything, the sense for our service business model has only improved, mainly because the install base is going to be bigger. I think you have to look at the service business as being close to $30 billion in revenue, with close to 30% operating profit, which now has, because of the install base, great visibility, around 10% top-line revenue growth, and then leverage on top of that, because of productivity programs and pricing programs we have in service. So this is only getting better.

[Keith Sherin:]

We tried to show at EPG the service chart and the impact on our margins. If you look at the going forward, we are estimating it somewhere between 50 and 80 basis points a year of operating profit improvement from that services mix that Jeff just talked about.

[Jeffrey R. Immelt:]

Again, just to go on equipment, not only have we had pretty good markets but we have also gained market share. We have had a great rail product. We have had unbelievable success in aircraft engines. We have had a Wind business that is now at a run rate of close to $4 billion. We have great success that is fueling our top-line growth, all of which is going to lead to a great service strategy as time goes on.

[Nicole Parent:]

Great, that is helpful. With respect to the equipment services business, I just want to double-check -- you had net income of $60 million. Does that include the $90 million Penske gain?

[Jeffrey R. Immelt:]

No, that is all in corporate.

[Keith Sherin:]

That is in corporate.

[Nicole Parent:]

Okay, that is fair enough. One last question on Healthcare. How much was the Biosciences? I think you said it was up 7%. How should we think about protein separation and drug discovery in the quarter?

[Keith Sherin:]

If you look at Healthcare for orders, Biosciences were up 8%, Medical Diagnostics were up 13% and Life Sciences was up 1%.

[Nicole Parent:]

Do you have the revenue numbers?

[Keith Sherin:]

The revenue, Medical Diagnostics were up 12%.

[Nicole Parent:]

And protein separation?

[Keith Sherin:]

I will have to get you protein separation separately.

[Jeffrey R. Immelt:]

Protein seps -- it was about 2% or 3%, I think.

[Keith Sherin:]

Yes.

[Nicole Parent:]

Okay, great. Thanks very much.

[Operator:]

The next question comes from the line of John Inch of Merrill Lynch.

[John Inch:]

Thank you. Good morning. Keith, what was GE industrial's organic revenue base, or growth rate this quarter?

[Keith Sherin:]

I think it was 8%.

[John Inch:]

That was 8%? How was pricing this quarter versus last quarter?

[Keith Sherin:]

If you look overall for the company, it was really a minimal impact. We had $28 million overall and the price index for the company is down one-tenth of a point, so a lot of different mix in the businesses. Good, good pricing in industrial, average pricing in infrastructure, Healthcare pricing was down slightly -- down less than 2%, and usually that has been down about 3%, so that improved, actually.

[John Inch:]

I am sorry, what improved?

[Keith Sherin:]

Healthcare pricing.

[John Inch:]

Healthcare improved?

[Keith Sherin:]

Healthcare improved -- the pricing has been down an average of 3% for the last couple of years. It was down a little less than 2% in the quarter.

[John Inch:]

Okay. Any other businesses, as you sort of look over the rest of the year, where you think pricing may be trending a little bit better, either because of your own initiatives or just trends in the marketplace?

[Jeffrey R. Immelt:]

I just think the service businesses are places where we continue to put a lot of focus, John, on pricing.

[John Inch:]

Okay, thanks.

[Dan Janki:]

Michelle, can we take one last question?

[Operator:]

Yes, sir. Our last question comes from the line of Tony Boase of AG Edwards. Please proceed.

[Tony Boase:]

Thank you. I just wanted to clarify the product…

[Dan Janki:]

Sorry, Tony, we lost you.

[Operator:]

Mr. Boase, may you please re-key star one on your telephone? Mr. Boase, your line is open, sir.

[Tony Boase:]

Thank you. I just wanted to get a little clarification on the product service mix shift in the second half. Is it due to the fact that you are able to faster translate product sales into service? Or is it just a timing issue as far as when equipment has come on, and now you are going to get better service? Or does it mean that some of the great equipment growth you have experienced slows down a bit in the second half?

[Keith Sherin:]

I try to say that the run rates on equipment actually continue in the second half. If you look for infrastructure, I will give you an example. The infrastructure equipment is about 43% of revenue in the second half and that is pretty much flat with last year, and the services are 57% of revenue in the second half. Basically what is happening is our equipment, as the orders have grown and grown over the last 18 months, the equipment delivery started to ramp up in the second half of last year. We ended up with continued good volume of equipment going out, but again it is against comparisons of pretty good volume last year, and then the service and equipment mix kind of levels off in the second half, which does improve profitability and margins.

[Tony Boase:]

Keith, I am sorry if I missed it, but did you say what gas turbine sales were in the quarter? Or deliveries?

[Keith Sherin:]

Yes, we delivered 37 gas turbines in the second quarter.

[Tony Boase:]

Are you still on track? I did not catch that.

[Keith Sherin:]

Yes, on the Energy page I tried to show in the second half that we are basically on track for what we said. We are going to grow the second half units from last year -- just one second -- if you look, we had 89 units in the plan this year for the second half versus 66 last year, and those are in the backlog. We feel pretty good about the plan for gas turbines. We have seen some pretty good order activity around the world in gas turbines. It looks like we are going to do close to 140 units this year. It is pretty good business. It is very competitive in terms of margins, but again, you are building that install base and helping to grow the future service business.

[Tony Boase:]

Maybe it is a little premature, but how is 2007 perhaps shaping up for gas turbine sales?

[Keith Sherin:]

They should be up slightly. I do not have any final numbers yet, but you look at the economic activity and the bids we are seeing and the orders we are seeing, one of the drivers is the continued strength in the oil and gas business. They need some gas turbines. We have a pretty good business model there and we feel good about the progress commercially around the world.

[Jeffrey R. Immelt:]

I think investors should feel pretty good about the energy business in terms of getting tailwinds behind us and getting better comparisons as time goes on. I think we are in pretty good shape there. Just before we leave, I just want to reiterate that even with the notion that -- I think given all the dynamics going on, we are counting on plastics being slightly weaker than we thought earlier in the year but we have great momentum in the rest of the company. I think we really are confident in the guidance we have given for the third quarter and for the year, and it is why investors should like the company. It is a strong set of initiatives. It is a good operating team and I think we are very well-positioned in the world we are in today.

[Tony Boase:]

Thank you.

[Dan Janki:]

Thank you all for your time. The information from today's call, both the transcripts and replay, will be available at our website, and Joanna and I will be available all day to take your calls. Thank you again.

[Operator:]

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