Carolina Dybeck Happe
Senior Vice President and Chief Financial Officer at General Electric
Thanks, Larry. Diving into the results. Turning to slide seven, I'll share the highlights from the quarter on an organic basis. Orders were up 4% and revenue up 5%, with growth led by Aerospace. On a sequential basis, adjusted revenue improved $1.6 billion or 10%, a significant step-up reflecting progress towards our second half ramp. Services revenue was a particular strength in the quarter as we delivered double-digit service revenue growth compared to last year, with Aerospace leading the way, up 47%. Equipment declined 6%, driven by Renewables.
Healthcare and Power equipment revenues were bright spots, with Healthcare up 5% despite supply constraints and Power up 18%, reflecting strong aero derivative shipments. Year-to-date, organic growth was 3%. Both quarter and year-to-date, this includes five points of pressure from supply chain disruptions, COVID impact in China and the Russia-Ukraine war with the latter contributing roughly one point of impact year-to-date. On adjusted margin, both Aerospace and Power saw expansion overall as a result of the actions we're taking, focused on pricing drove more than 100 basis points of margin expansion in the quarter. Services mix, particularly in Aerospace, contributed favorably.
We also saw improved contract margin reviews for CMRs with strength from contractual escalations and engine utilization. Cost reductions were more than 150 basis points of year-over-year benefit, largely restructuring savings and some timing-related corporate benefit. Partly offsetting these improvements was approximately 200 basis points of margin headwinds from inflation and logistics costs, net of sourcing actions. In Aerospace and Power, the net impact of price cost and inflation was positive. Healthcare and onshore wind both took steps to address cost and price, but it wasn't enough to offset the inflation. Lastly, adjusted EPS was up about $0.56 or about 2.5 times driven by profit growth plus lower interest expense from our debt reduction actions.
About $0.15 of earnings was timing related that we either do not expect to repeat or had originally expected in the third quarter. Continuing EPS was negative, primarily driven by the unfavorable mark-to-market impact from our Baker Hughes and AerCap positions. In total, we delivered a strong quarter marked by revenue up mid-single digits significant profit growth and margin expansion. These results and our focus on execution gives me confidence that we will achieve the low end of full year growth, profit and EPS outlook even in a tough environment. Year-to-date, we have delivered more than 1/3 of our EPS guide, in line with typical seasonality.
Moving to cash. We generated $200 million of free cash flow driven by strong adjusted earnings, which was positive, excluding the mark-to-market impact previously mentioned. Despite a limited impact on free cash flow in the quarter, supply chain challenges are contributing to inventory pressure and later deliveries and billings. First, on working capital dynamics. Receivables for the use of cash driven by billings from sequential revenue growth and also pressured by later deliveries in the quarter. This was partially offset by collection strength, where we saw a seven-day DSO improvement year-over-year. Inventory up across all businesses was a large use of cash.
A portion of this is typical, building for the second half volume growth leads to inventory and accounts payable growth with material resets outpacing disbursement. This quarter, however, supply chain challenges also contributed to elevated inventory levels across inputs and outputs. Inputs were pressured by the impact on inflation and additional purchases needed to support second half deliveries for customers. For output, fulfillment challenges led to higher inventory. Progress was a source of cash, mainly due to Aerospace collections on equipment orders to support production. Contract assets was a use of cash.
We saw continued strength in aerospace utilization, resulting in higher billings, offset by service revenue in Aerospace and positive CMRs. In the second half, we expect free cash flow to be significantly greater than the first half due to higher collections on revenue growth and disbursements in line with the first half inventory build. However, supply chain constraints are delaying deliveries and pushing collections to the following periods. So as a result, much of the third quarter free cash flow is likely to shift to the fourth quarter, while late fourth quarter deliveries would leave a higher receivable balance at the end of the year to be collected in 2023.
Combined with lower progress payments from renewable energy orders, we expect this to result in a deferral of about $1 billion of free cash flow out of 2022. Turning to the business. Aerospace delivered a very strong quarter as the commercial market continued to recover. Orders grew across the board, up 26% with both commercial engines and services up substantially, reflecting continued robust customer demand. Revenue was up, driven by significant growth in commercial services with shop visits 14% higher year-over-year and continued strength in spare parts sales. Supply constraints, including material availability, negatively impacted revenue by nine points, primarily in commercial engines.
Military growth was driven by services while engine deliveries slowed due to temporary setbacks, specifically in T700 shipments, we expect tangible improvements in the second half. Commercial Engine revenue was down slightly as supply chain disruptions continued to impact deliveries. Total engine shipments were down 7%, largely due to lower GEnx production, where LEAP shipments were up 7%. Segment margin expanded by almost 15 points primarily driven by commercial services growth, lower OE shipments as well as actions improving pricing structures to address inflation and CMR performance.
CMR alone drove over eight points of improvement given the negative CMR last year. For the total year, largely due to China's first half slowdown, we now expect shop visits to be in the high teens range. We also expect lower commercial engines revenue, trending below 20% growth year-over-year due to continued supply chain challenges. However, we continue to expect more than 25% commercial services growth from ongoing strength in spare parts sales, and that more than offsets the lower shop visit volume and OE volume. Therefore, we still expect to achieve greater than 20% growth and $3.8 billion to $4.3 billion of operating profit for the year.
Moving to Healthcare. Market demand remains solid, while supply and inflation challenges continue to impact the market. Underlying customer orders indicate continued commitment to investment and we're encouraged by signs that supply chain pressures will ease in the second half of this year. We continue to monitor hospital investment plans and procedure activity. Second quarter orders grew 1%, but that was against a tough comparison to the second quarter of last year when orders increased 11% as well as the impact from COVID in China. Orders increased mid-single digits in services, partially offset by a slight decline in equipment orders.
Comparisons continue to be challenging through the second half. Revenue in the second quarter was up 4%, with mid-single-digit growth in equipment and low single-digit growth in services. Growth was driven by Imaging, Ultrasound and HCS services sales, and it was offset by the continuing supply chain constraints, including those related to COVID impact in China. Recall that fulfillment challenges started in the second quarter of 2021. And when excluding supply chain impact in both periods, revenue growth would have been 5% this quarter, highlighting how we proactively manage sourcing and logistics. COVID in China impacted growth in both equipment and PDx revenue.
With China broadly reopening in early June and our Shanghai PDX facility fully operational, our equipment and PDx revenue in China is expected to rebound in the third quarter. Segment margin was impacted by material and logistics inflation with some sequential improvement. Net of sourcing actions, margins contracted about 300 basis points year-over-year but were up about 200 basis points sequentially. We are making progress with price and sales positive for the first time in recent history. Looking ahead, Healthcare is focused on driving cost reductions and implementing Lean through supply chain actions to deliver for customers and address cost and price structures as we work to offset inflation and logistics pressures.
We are also prudently investing in future innovation, aiming at high-return differentiated technologies. Our commitment to R&D investments is demonstrated by the double-digit year-over-year increase this quarter. For example, we launched Voluson Expert 22, our most advanced ultrasound yet. This latest addition to our Women's Health portfolio has AI-powered tools and our proprietary Lyric Architecture to unlock new imaging and processing power, achieving higher resolution detailed images and scanning flexibility revealing fine anatomy in 2D, 3D and 4D with ease. In addition, our inventory levels are elevated as we prepare for an anticipated ramp in orders fulfillment in the second half of 2022.
As Larry mentioned, we're making good progress on the Healthcare spin. We have an opportunity to impact both patients and customers as Healthcare transitions into an independent public company. Looking at the full year, order demand remains solid, and we're expecting mid-single-digit revenue growth while closely monitoring customer order activity. Due largely to inflation pressure, we now expect 2022 operating profit to be about $3 billion, slightly below our prior outlook. Turning to Renewables. Orders were down due to continued pressure from onshore North America market dynamics and the selectivity in international, impacting both equipment and services repower upgrades.
Partially offsetting this were Grid and Hydro, which won a large order for the upgrade of the Itaipu hydropower plant. Grid had orders growth across all businesses, including significant growth in grid automation. Revenue declined with roughly 2/3 of the decline from lower onshore wind North America deliveries. The remainder of the decline was primarily driven by Onshore Wind International as planned. Grid and onshore services, excluding repower, both were up low single digits, reflecting our focus on driving growth in these businesses. Segment margin declined significantly although up 160 basis points sequentially. Roughly half the year-on-year decline was a result of volume reductions in our most profitable market, U.S. onshore.
The remainder of the decline was split roughly equally between net inflation pressures across our businesses and higher-than-expected new product costs in Onshore International as we take measures to improve durability across our fleet. This was partially offset by Grid where margins improved from higher volume and benefits from prior restructuring actions, and we also recovered costs associated with legacy hydro projects of about $70 million. In summary, we knew coming into this year that renewables would be challenging. Offshore wind is a long-term investment in an industry still not at full maturation. Grid, a critical part of the energy transition, is where we're making good progress today.
Our priority is onshore wind where many pressures are converging. The ongoing paralysis in Washington with the PTC expiration is hitting our most profitable market, impacting demand. This is coupled with additional inflationary pressures and fleet durability actions. For 2022, due to these dynamics, we no longer expect a step-up profit in the second half. Clearly, we have more work to do here. We're taking swift actions to turn around this business, running our power playbook. Given the strength of our portfolio and the fundamental importance of renewable energy in the energy transition, we remain confident that we will drive profitability over time. Moving to Power. Starting with the market. Global gas generation and GE utilization remained resilient, growing low single digits.
Despite higher gas prices and availability challenges, gas remains a fuel of choice on the dispatch curves around the globe to meet the growing electricity demand. We continue to expect the market for gas generation to grow low single digits over the next decade. Orders were down in the quarter, largely reflecting the uneven equipment order profile we've seen quarter-to-quarter. Services declined due to lower gas CSA outages in line with our multiyear technology cycle. Importantly, Power orders grew low single digits in the first half of the year, driven by equipment strength in the first quarter. The team remains focused on disciplined underwriting and backlog quality.
Revenue was up mid-single digits, primarily driven by margin-accretive aeroderivative strength, shipping 14 more units versus last year. Overall, services revenue was flat. We delivered strong transactional services growth in gas and power conversion, which was offset with the expected lower gas CSA outage volume. Segment margin reached high single digits in the quarter and expanded 30 basis points. At Gas Power, margins remain resilient from improving price structure to address inflation and aero equipment and transactional services volume growth.
This helped offset the mix headwind. At Steam, margins improved significantly due to continued focus on productivity as well as project and legal charges from last year that didn't repeat. We're focused on expanding our services opportunity and expect higher CSA outages next year. In the second half, we expect more growth as each class and aero delivery ramp alongside the continued strength of transactional services and the improvement at Steam. Power is set up well to grow profit in 2022, and we are reaffirming our outlook for low single-digit revenue growth and margin expansion. Finally, a moment on corporate. Adjusted corporate costs decreased over 50% versus last year and 65% year-to-date.
We saw lower functions and operations costs from some timing benefit in addition to lower elimination. Given the favorability in the first half, we now expect corporate costs of below $1 billion for the year. While excluded from our adjusted results, insurance net income was approximately $140 million. This was down year-over-year as COVID favorability subsides and trends continue to normalize. As we have previously disclosed early this year, aligned with the industry, we plan to adopt the GAAP LDTI accounting standard. The transition adjustment is being applied retroactively to the beginning of 2021. As a result, we expect a negative equity impact of about $7 billion to $8 billion after tax using January '21 rates.
This is driven primarily by the lower discount rates. Using June 30, 2022 rates, the transition adjustment would be $4 billion to $5 billion, taking effect in the first quarter of 2023. Also embedded in this estimate is the $1.5 billion to $2 billion after-tax equity impact primarily from adopting the LTC first principles approach, which complements the LDTI and incorporates a more granular modeling assumptions. The first principles model are considered an industry best practice and allow for additional transparency driven by refined modeling that improves claims projections. Importantly, we do not expect any additional cash funding needs as a result of these changes currently. We will finalize our CFT results in the first quarter of 2023.
We also currently expect our LRT margin to remain positive and will report results in the third quarter of this year. We've provided more info on this in the 10-Q that we filed today. In discontinued operations, our runoff Polish BPH mortgage portfolio ended the quarter with a gross balance of about $2.1 billion. And this quarter, we recorded charges of about $200 million, primarily driven by unfavorable results for banks in ongoing litigation with borrowers. This brings the total litigation reserves related to this matter to approximately $1 billion.
Stepping back, despite the volatile environment, we are pleased by the progress we made this quarter. We delivered order, revenue and profit growth and positive cash. This gives me confidence in achieving the outlook for 2022 that we've shared today.
Now Larry, back to you.