Carolina Dybeck Happe
Senior Vice President and Chief Financial Officer at General Electric
Thanks, Larry. Let's dive right into our results.
Turning to Slide 4. I'll provide color on the quarter on an organic basis. Overall, orders were strong when revenue up 1% remained pressured, especially in renewables due to U.S. onshore. The constraints that Larry detailed, including supply chain disruptions, Russia-Ukraine and China, weighed on our ability to ship, which further hurt revenue. Taken together, these constraints reduced the total growth by about 6 points. Plus, our selectivity actions impacted revenue by another point. It's important to highlight that this was largely an equipment dynamic. And services remained strong, up 15%, with growth in all businesses.
Notably, aviation and commercial services rose 37% as the market recovery accelerated. We continued to enhance profitability, expanding our adjusted margin 110 basis points, reflecting the mix shift to higher-margin services and continued cost productivity. On the positive side, both aviation and power expanded with more than 300 basis points, driven largely by favorable services mix. Within power, Steam showed significant expansion, reflecting our strategy to exit less profitable segments like new build coal as well as benefits from prior cost actions.
There was approximately 200 basis points of additional margin headwinds from inflation and logistics costs net of sourcing actions at the total company level. This was greater than expected, especially in our shorter-cycle businesses like healthcare. While we achieved positive pricing on deliveries this quarter, particularly in aviation and power, it was not enough to offset inflation. Despite the tough macro environment, we are continuing to prioritize investing in the future, with R&D up double digits. We remain focused on leading with innovation through high-return, strategically differentiated technologies, such as aviation, next-gen programs and healthcare Imaging platforms like the CT photon counting.
Finally, we increased adjusted EPS 85%, driven by margin expansion. In the standard work from continuing to adjusted EPS, I'd call out three additional adjustments this quarter. First, separation costs related to the planned business operation; second, the asset impairment due to our previously announced plan to sell the nuclear activities within our Steam business to EDF; and third, Russia and Ukraine charges, primarily related to sanction activities at aviation and certain power businesses. In all, we delivered significant order growth and continued margin expansion this quarter.
Moving to cash. Free cash flow was negative $880 million, a use of cash which we expect seasonally. This was an improvement of $2.5 billion year over year on a reported basis or up $1.7 billion, excluding discontinued factoring programs. The improvement was largely driven by lower interest expenses and derivatives on reduced debt, as expected, as well as improvement at aviation and power, in line with earnings growth and utilization. This was offset by significant headwinds, including supply chain disruptions. This quarter, working capital was the biggest component of negative free cash flow. And looking at the dynamics, receivables was a use of cash. This was driven by growing CSA billings through the quarter at aviation and supply chain constraints, driving higher deliveries late in the quarter.
Inventory was also a use across the businesses of $1 billion. We expected inventory to grow in the first quarter as inventory was built to support second-half volume, but this was further impacted by material shortages, delaying shipments of finished goods. We still see opportunities to improve both inventory turns and receivable DSOs. In this challenging environment, it is much harder to implement though, but we are still seeing pockets of improvement. Take the Onshore Wind North America. Our team in Pensacola, Florida held a case and event focused on hub costing. Using standard work, they reduced lead time to prep the hub costing for the assembly line by 80%, so from nine hours to under two. And as a result, the team also includes productivity by about 50% and reduced inventory by more than 80%.
Contract assets and progress collections were a source of cash. Strength was driven by utilization, outpacing service visits in aviation and power as well as progress payments in aviation and renewable energy. In all, our efforts to improve working capital management are slowly taking hold despite the difficult supply chain environment. We see real opportunity for the company to build on this momentum, keeping us on track to reach more than $7 billion of free cash flow for 2023. Our success in strengthening our balance sheet and improving cash flow provides us with more optionality to drive value, both through growth investments and capital return initiatives. To that end, our board recently authorized up to $3 billion in share repurchases as a potential capital allocation alternative.
Moving to the businesses. Aviation results reflect continued recovery in commercial markets as demand remains strong. However, supply chain disruptions presented headwinds to our top-line performance this quarter. This will be a key watch item as we progress through the year, but we still expect improvement across the business as deliveries and shop visits ramp. For the quarter, orders grew significantly, with both commercial engines and services up substantially again. military orders were down, largely due to a tough comp in the previous year when we recorded big CF6 and T408 engine wins. Demand remains robust. Revenue was up due to meaningful growth in commercial services, again, the shop visits up 18% year over year. Growth in shop visits this quarter would have been even higher without the material availability and fulfillment issues we experienced.
Military was up as lean improvements begin to materialize. As we apply the T700 learnings across other programs, we expect tangible progress through the second half of 2022. Commercial engine revenue was down double digits, driven by supply chain disruptions and lower production rates on GEnx. You can see the impact of wide-body mix here as engine shipments were down just 4% year over year, with LEAP narrow-body up 27%. The supply chain constraints were mainly related to labor and material availability due to COVID disruptions in our facilities and at our suppliers, which we're actively managing.
Segment margin expanded 310 basis points to 16.2%, primarily driven by commercial services growth as well as positive pricing and productivity. This was partially offset by higher LEAP engine shipments, inflation, and additional growth investments. Looking ahead at the remainder of the year, we expect demand to remain strong as the market continues to recover in most parts of the world despite uncertainty in China due to the recent COVID impact. We're managing through this and the supply chain disruptions. We still expect shop visits to ramp through the year up to 25%, driven by the ongoing recovery and customer confidence. And this supports the total year growth of 20% or more.
Moving to healthcare. Market demand continues to be strong, though the first quarter was impacted by supply chain and inflationary challenges. Orders were up high single digits year-over-year. This was driven by high single-digit growth in healthcare Systems and mid-single digits in PDx. Elective procedure volumes recovered from January. COVID cases subsided in February and March, with volumes improving sequentially, though hospital staffing shortages continue. Revenue was up 2%, with services growing low single digit and equipment flat. Growth was impacted by the continued supply chain constraints, primarily in electronics; COVID impact in certain China regions, further limiting what we can buy and ship and affecting revenue toward quarter end; lower volume in Russia and Ukraine, a region that accounts for about 2% of healthcare's annual sales.
And finally, COVID has delayed site readiness and some equipment installations, mainly due to customers' labor and construction material shortages. Absent these constraints, we estimate that the revenue growth would have been about 7 to 8 points higher or a year-over-year growth of approximately 9%. Segment margin was significantly impacted by increased material and logistics inflation, which net of our sourcing actions resulted in a headwind of about four points. We've been leveraging every tool at our disposal within our control. This includes: price actions, which are showing early success; qualifying alternative parts; redesigning product configuration; and reducing discretionary spend.
The healthcare team remains focused on innovation and commercial growth investments, with R&D investments up double digits this quarter. A couple of key solution highlights from the quarter include: the FDA approval of the End-tidal Control software platform to automate anesthesia delivery and a subscription model for our handheld ultrasound tools. Looking ahead, our current view at healthcare is that supply and inflationary challenges will persist at some level through 2022.
Sequential improvement depends on supply chain constraints easing, especially in China, and our ability to leverage lean to improve output and strengthen our pricing discipline. We are working to offset headwinds with price increases. But given product fulfillment timing, this will likely have a more meaningful positive impact in the second half. We also continued to manage SG&A and discretionary costs to improve margins. Our supply chain constraints is healthcare is well-positioned to achieve high teens to 20% margins over time.
Turning to renewables. Our results were challenging. So let me give you more context. We're seeing pressure in the U.S. Onshore Wind, largely due to the PTC dynamics, and higher prices suppressing demand as customers delay decisions. Grid is positioned to support modernization needs as demonstrated by our contract this quarter to supply a digital subscription for the Empire Offshore Wind 1 project. And we've started to see increased interest within Europe as countries recognize the need to meet their energy goals. On the quarter, orders were down double digits.
Onshore equipment orders decreased, consistent with the inflation-driven customer delays and the U.S. market decline. Our selectivity strategy is impacting both wind and grid. Grid was also down as we lapped the large HVDC order versus last year. However, with automation orders remain strong, up double digits. And overall, services grew mid-single digits. Revenue declined, with all businesses down as we saw lower equipment revenue with 280 fewer wind turbine deliveries year-over-year. Grid was also down due to increased selectivity.
This was partially offset by significant services growth, primarily driven by onshore repower. Segment margin declined substantially, driven by volume reduction in our most profitable market, U.S. onshore, combined with cost inflation in materials, such as steel and transportation costs across the business. Onshore Wind margin declined and was negative, pressured by volume, mix, and the new product transitions. We continued to transition to newer product offerings internationally and executed on lower-margin projects in North America. On the positive side, we saw benefits from lower cost and savings associated with prior restructuring projects across our businesses.
At grid, margins improved slightly with the restructuring benefits, offsetting lower volume and our rundown of low-margin legacy backlog. Today, due to lower volumes in Onshore Wind North America and the additional inflation we've seen, we expect renewables to be below the outlook range. The business full-year result will depend largely on North America volume, the inflationary environment, and execution of cost and price actions. Overall, these results are disappointing and we know we have a lot to do here, but we have a proven playbook and a leadership driving price to market and selectivity and taking a hard look at the right cost structure. Long term, we're confident the team will drive profitable growth given the market demand for renewable energy generation as the world adds 1,000 gigawatts of wind capacity in the next decade and our strong portfolio.
Moving to power, where our team is driving operational improvements. Better results reflect progress with gas power, steam, and power conversion as lean takes hold, positioning the business for long-term success. Global gas generation and GE utilization remained resilient, up mid single-digits as the market manages through the uncertainty and disruptions in Ukraine. Despite recent price volatility, gas continues to be reliable and economic source of power generation. And over the next decade, we expect the gas market to remain stable, with gas generation growing low single digits.
Orders were strong, and we improved the quality of the backlog for the future. Significant growth in equipment was driven by large H-class order, with continued aero momentum. Our new business underwriting remained disciplined as we grow our backlog profitably. Services orders were also up, driven by gas, with growth in both our contractual and transactional business. Revenue was down mid-single digits, primarily driven by equipment as we shipped three fewer H-class units year-over-year. This was consistent with our backlog ship dates, which will result in back-end loaded equipment revenue this year. Aero continued to grow, shipping seven more units versus last year. And services was up 1%, driven by gas and power conversion.
And recall, we deconsolidated the Baker aero joint venture last year, so that is now excluded from our organic metrics. Segment margin expanded 360 basis points. Gas power margin was positive and improved. We are seeing progress in steam with meaningful margin improvement due to the increased focus on services, reduced cost structure, and project and legal charges from last year that did not repeat. Similarly, the focus on services and selectivity at power conversion generated positive margin, making four quarters of profitability. And for 2022, we expect to deliver margin expansion, driven by aero deliveries, transactional services, and continued improvement in Steam.
And while we expect a dip in our CSA revenue, driven by a lower planning outage profile in 2022 really based on multiyear technology cycles, we expect to increase next year. And we expect continued strong service fleet utilization and cash generation. Power remains on track to meet its full-year outlook, though the team faces a relatively higher exposure to Russia than the other businesses, with Russia comprising of about 4% of revenue at high incremental margin. Importantly, our commitment to selectivity and operational execution is enabling us to win the right orders, grow services and increase free cash flow generation.
Finally, I'll spend a moment on corporate. As a reminder, we rolled the remainder of capital, including EFS and the corporate. Adjusted corporate costs, which we expect to be uneven through the year, decreased by more than 40% year over year. This was primarily driven by better EFS performance and improvements in functions and operations. While excluded from our adjusted results, insurance net income was approximately $180 million, up year over year. This was driven by favorable claim experience in our LTC portfolio and continued investment return favorability.
This quarter, we also completed our annual cash flow test. As expected, we funded $2 billion in line with permitted practice. Additionally, our team is preparing to implement the industrywide FASB accounting standard beginning in January 2023. As disclosed previously, this will result in a GAAP charge but does not impact projected cash funding. At Q2 earnings, we'll provide more detailed update. In parallel, we are adopting the LTC first principles approach, which complements the FASB standard and includes incorporating more granular modeling assumptions. This is expected to impact our GAAP LRT margin, but we expect the margin to remain positive. And in addition, we do not expect changes to statutory reserves to regulatory capital or projected funding.
In discontinued operations, we have our runoff Polish BPH mortgage portfolio, with a current gross balance of $2.2 billion. This quarter, we recorded charges of about $200 million, mainly driven by more adverse results for banks in the ongoing litigation with borrowers. This brings the total litigation reserves related to this matter to approximately $900 million. Stepping back, we are managing through an increasingly difficult macro environment. We are focused on what's within our control by leveraging lean and digital tools to improve our operations. As those improvements take hold, we'll drive sustainable, profitable growth and free cash flow, enabling us to deliver value for shareholders and strengthening GE for the long term.
Now, Larry, back to you.