Patrick Hallinan
Executive Vice President and Chief Financial Officer at Stanley Black & Decker
Thanks, Chris, and good morning. Turning to the next slide. I would like to highlight the progress we have achieved, streamlining the business and transforming our operations. We are on-track to deliver our $2 billion pre-tax run-rate cost savings target by the end of 2025. We achieved approximately $160 million pre-tax run-rate cost savings in the fourth quarter, bringing our aggregate savings to over $1 billion since program inception. This performance is slightly ahead of plan as our teams accelerated savings efforts to offset macroeconomic volume headwinds that were greater than expected throughout the year, including during the fourth quarter.
Strategic sourcing initiatives remain the largest contributor to our supply chain transformation to date. In addition to the program, freight rate and demurrage savings also contributed to margin improvement starting early in 2023, and holding throughout the year. Consistent with expectations set at transformation inception, we expect strategic sourcing to be the leading contributor to savings, and we expect this to be the case in 2024. Our operations excellence program continues to leverage lean manufacturing principles to improve productivity across both business segments. This work stream will expand in scope during 2024, and drive further cost efficiency in our manufacturing base.
The footprint related projects are progressing on-schedule and production transfers into centers of excellence are in the various stages of qualification, testing and execution. Similarly, logistics network optimization programs are also on track with regional distribution center redesigns underway. Concerning complexity reduction, our teams have identified approximately 85,000 SKUs for discontinuation, and are assisting customers as they transition to replacement products. We have successfully eliminated over 45,000 SKUs as of the end of 2023 with more expected in 2024. These actions are expected to generate approximately $0.5 billion of savings in 2024, supporting the funding of additional growth investments in our core business. As we move into the next phase of our transformation, footprint and product changes such as those from platforming will become more important and result in a lumpier cost savings trajectory as you would expect. We remain confident that our transformation can support the sustainable cost efficiency needed to return our adjusted gross margin to 35% or greater.
Moving to the next slide, two of our primary areas of focus during 2023 were free cash flow generation and gross margin expansion. We reduced inventory by approximately $240 million in the fourth quarter, inclusive of approximately $100 million attributable to the infrastructure business held-for-sale accounting. This brings our inventory reduction to approximately $1.1 billion in 2023, and $1.9 billion since the middle of 2022. Our disciplined inventory reduction efforts throughout the year supported $853 million of free cash flow generation, which we used to fund our dividend, and reduced debt by approximately $280 million versus the prior year.
We remain focused on working capital optimization, in addition to improving profitability to generate significant free cash flow. In 2024, we plan to reduce inventory by $400 million to $500 million, as we continue to prioritize working capital efficiency. Capex is expected to range between $400 million to $500 million increasing versus 2023 predominantly in support of the footprint-related transformation initiatives planned for 2024. These items, in combination with organic cash generation underpin our full-year free-cash flow range of $600 million to $800 million.
As a reminder, we expect a typical profile for our working capital as we build inventory for the 2024 Tools & Outdoor spring selling season, resulting in the typical first quarter operating cash outflow. Our priority for capital deployment remains consistent, making transformation investments, funding our long-standing commitment to return value to shareholders through cash dividends and further strengthening our balance sheet.
Turning to profitability. Adjusted gross margin of 29.8% in the fourth quarter was up 10.3 points versus the prior year driven by lower inventory destocking costs, supply chain transformation benefits, and lower shipping costs, which more than offset the impact from lower volume. Adjusted gross margin finished ahead of plan as we intentionally accelerated supply chain transformation actions in 2023, while navigating weak consumer and outdoor demand and channel inventory conservatism to meet our profitability and cash flow objectives. Additionally, pricing was 0.5 point better than our expectations, due to lower promotional mix in the quarter.
We will continue our measured and disciplined approach to cost management to moderately improve on our second half 2023 adjusted gross margin gains into the first half of 2024, while managing the margin pressures that accompany the outdoor selling season. This is notable given that we are able to deliver second half 2023 adjusted gross margin, 1 point above the high-end of our initial '23 guidance, demonstrating the transformation is on our targeted trajectory.
We are planning for adjusted gross margin to approximate 30% for the full-year 2024, and expect to exit the year in the low 30s consistent with prior expectations.
We are leveraging our $0.5 billion of cost reductions from the supply-chain transformation and working hard to navigate another year without a macroeconomic tailwind. We made significant progress throughout 2023 on our journey to restore our historical 35%-plus adjusted gross margin, and our efforts are enabling incremental investments to accelerate long-term organic revenue growth.
Now, let's turn to our 2024 guidance and the remaining key assumptions. To reiterate, we are planning for 2024 to be another year where we prioritize cash-flow generation and gross margin improvement. We are initiating a full year free cash flow guidance range of $600 million to $800 million, GAAP earnings per share range of $1.60 to $2.85, and an adjusted earnings per share range of $3.50 to $4.50.
We expect relative strength in demand for professional tools and some of our industrial markets. Conversely, we are prepared for weak consumer and outdoor demand trends to persist. Together, these dynamics result in a modestly negative outlook in aggregate for our markets. We are planning for organic revenue to be relatively flat at the midpoint, supported by targeted share gains in our businesses. Our EPS range contemplates plus or minus 2 points of volume growth with the variation representing the market demand scenarios in the plan.
Tools & Outdoor organic revenue is expected to be relatively flat at the midpoint, behind our focus to win with the Pro through industry-leading innovation, investments in field resources and consumer share gains leveraging our strong portfolio of brands. The Industrial segment revenue is expected to be relatively flat to slightly positive organically, primarily driven by aerospace market recovery as well as leveraging our core business model and electrification to deliver share gains.
Industrial growth in 2024 is expected to be moderated by infrastructure destocking in Q1 before the closure of the signed divestiture and expected softness in general industrial fastening market. We will continue to invest for long-term organic growth and share gain throughout 2024 and plan to invest an incremental $100 million to accelerate innovation, market activation, and to support our powerful DEWALT, CRAFTSMAN and STANLEY brands. Our planning expectation is that SG&A as a percentage of sales in 2024 remains consistent with our recent fourth quarter around 21%, which includes investments.
Turning to profitability, we expect total company adjusted EBITDA margin to improve to approximately 10% for the full-year supported by the benefits of the transformation program. Segment margin in Tools & Outdoor is planned to be up year-over-year, also driven by continued momentum from our ongoing strategic transformation.
The Industrial segment margin is expected to be flat to up slightly versus prior year as operating improvement in Engineered Fastening is offset by the dilution from the previously announced divestiture of the infrastructure business. For additional context around infrastructure, our guidance assumes approximately $100 million of first quarter sales with the divestiture closing at the end of the quarter. Thereafter, we have excluded the profit and assumed the proceeds will be used to reduce our commercial paper debt balance.
With these assumptions, we've established a $1 adjusted EPS range, with the largest contributor being market demand variability. We will work to optimize adjusted gross margin through our transformation program. We will manage SG&A thoughtfully throughout the year, given the macro uncertainty. But we will be working hard to preserve investments to position the business for longer-term growth.
Turning to the other elements of guidance. GAAP earnings include pretax non-GAAP adjustments ranging from $290 million to $340 million, largely related to the supply chain transformation program with approximately 25% of these expenses being non-cash footprint rationalization costs. Our adjusted tax rate is expected to step up in 2024 to 10% with the first three quarters generally in the mid 20s. Discrete tax planning items are expected to reduce the full-year rate, and we currently expect these to occur in the fourth quarter. Other 2024 guidance assumptions at the midpoint are noted on this slide to assist with modeling.
We expect the first quarter adjusted earnings per share to be approximately 13% of the full year at the midpoint. The EPS for the first quarter is impacted by the tax profile I discussed earlier, and the heavier contribution from interest expense associated with the expected first quarter commercial paper debt balance. Adjusted first quarter EBITDA as a percentage of full year is expected to be over 20%, consistent with pre-pandemic history. First quarter total company organic sales growth is expected to be down low single-digits, primarily due to the same factors driving fourth quarter '23 softness. Adjusted EBITDA margins are planned to be up strongly versus prior year, leveraging the carryover benefits of the program and comping the destocking period.
In summary, 2024 represents another step along our transformation journey with a continued focus on gross margin and cash while targeting share gains in a stable, but tough macro-environment. We believe our actions continue to position the company for long-term growth and shareholder return.
With that, I will now pass the call back to Don.
