Patrick D. Hallinan
Chief Financial Officer & Executive Vice President at Stanley Black & Decker
Thanks Chris, and good morning. As Don shared, we continue to make meaningful progress on our transformation journey. I will now highlight our financial accomplishments during the third quarter and detail our focus on delivering our 2024 objectives and our margin progression in 2025 and beyond.
In the third quarter we achieved approximately $105 million of pre-tax run rate cost savings, bringing our aggregate savings to approximately $1.4 billion since the program's inception. Our third quarter and program to date performance demonstrates strong execution by employees across our organization. We are tracking the plan driven by consistent progress across our work streams. We are diligently capturing cost efficiencies amidst a backdrop of soft demand and freight inflation as we complete the transformation and pursue the actions needed to meet our gross margin objectives.
Stepping back, we continue to target $1.5 billion of pre-tax run rate savings by the end of 2024 and $2 billion of pre-tax run rate savings by the end of 2025. We are on track to achieve both targets as we work towards our 35% plus adjusted gross margin target. As a reminder, our core supply chain transformation savings initiatives are strategic sourcing, operations excellence, footprint actions and complexity reduction.
Strategic sourcing remains the largest contributor to our transformation savings to date driven by component related savings captured in 2024. Sourcing activities are leveraging the advantages of a functional center of excellence, capturing economies of scale and rationalizing our supply base to focus spend on our critical strategic suppliers. Operations Excellence is the next area of opportunity which translates to productivity improvements across our system. This initiative leverages lean principles which are being implemented at targeted sites throughout the globe. We are optimizing our distribution footprint as well as redesigning our manufacturing network to leverage scale and centers of excellence as we maximize operational efficiency.
Approximately one-third of our facilities are undergoing significant change during 2024. We expect this work to continue into 2025 and potentially beyond. We are well underway with our platforming strategy as we identify methods to standardize parts and components across product families. The aim is simplicity, which we will achieve by reducing complexity, improving procurement scale and ultimately decreasing the cycle time of our innovation process. We are combining this with a fresh design to value approach, to better serve our customers at a competitive cost advantage. This method takes a holistic approach to designing and bringing new products to market faster while also doing so more efficiently which can generate material productivity and cost savings well beyond 2025.
As much as it's a method, it's a mindset that we are instilling across the company, as we continue to look for productivity enhancements going forward. I would like to commend the organization for diligently pursuing the goals of our transformation. This journey would not be possible without everyone's contributions. The progress we've shared today, including developing a sustainable cost structure and generating operational efficiency gives us confidence in our ability to achieve our gross margin objectives for 2024 and to achieve 35% plus adjusted gross margins as we work to close out the transformation. With that said, we believe this is not the end goal, rather a waypoint on the journey.
Moving to the next slide. During the third quarter we continued to make progress on two main areas of focus -- generating free cash flow and expanding gross margins to support investment in long term profitable growth and share gain. We generated nearly $200 million of free cash flow in the third quarter. This brings year-to-date free cash flow broadly in line with where it was the prior year. That said, and importantly, the composition of free cash flow reflects a healthier mix. In the current fiscal year, free cash flow is weighted towards cash earnings, and benefits from transformation cost efficiencies in addition to working capital reductions, the latter of which dominated 2023 free cash flow generation. This shift in makeup is a strong signal that our profitability and operating improvements are translating to sustainable free cash flow generation.
We are reiterating our full year free cash flow guidance range of $650 million to $850 million dollars. We expect fourth quarter cash generation to be supported by positive earnings, working capital reductions from a seasonal drawdown of receivables, as well as a modest reduction to inventory. Our 2024 outlook for capital expenditures is $325 million to $375 million, which is approximately $75 million lower at the midpoint than our previous assumption. This benefit for 2024 is offset by an expectation that we will carry slightly higher levels of inventory at year end versus our July guidance. With that in mind, we are taking a measured approach to inventory management in the back half of 2024 and into 2025, as we navigate potential changes to the external environment and our markets, including the possibility for an acceleration of demand.
Looking forward, we are planning to allocate free cash flow in excess of the dividend to support debt reduction, which we expect will result in a total gross debt balance that is a little over $6 billion as of the end of 2024. Beyond 2024, we are planning for further deleveraging with a goal to achieve our targeted leverage metrics of approximately 2.5 times net debt to EBITDA by year end 2025. We plan to achieve this objective by utilizing excess free cash flow beyond the dividend and modest portfolio pruning actions.
Turning to profitability, adjusted gross margin was 30.5% in the third quarter, a 290-basis point improvement versus prior year, primarily driven by savings from the supply chain transformation net of normal wage and benefit inflation. We are planning for further sequential improvement in the fourth quarter supported by our supply chain transformation initiatives. Our current plan puts us on the path to achieve our goal of approximately 30% full year 2024 adjusted gross margin.
Now turning to 2024 guidance and the remaining key assumptions. In addition to reiterating free cash flow guidance, we are guiding GAAP earnings per share range to $1.15 to $1.75, and adjusted earnings per share range to $3.90 to $4.30, with both ranges narrowed but unchanged at the midpoint as compared to our prior guidance. Our outlook factors in the continuation of a relatively soft macro environment in the fourth quarter, one that is marginally weaker than that anticipated at the end of the second quarter, driven by continued consumer softness and global automotive production declines that appear to have yet bottomed.
As we have done throughout the year, we are leveraging the cost savings primarily within our control to offset these pressures and generate adjusted EBITDA growth versus the prior year. At the midpoint of our guidance, we are assuming full year organic revenue will be down 1 percentage point with fourth quarter organic revenue declining approximately 1.5%. Our full year total revenue guidance at the third quarter ending foreign currency rates is relatively similar to our prior revenue guidance as recent currency rates are less negative than previously forecast, offsetting the moderate incremental weakness in organic revenue.
Turning to the segments, our outlook for tools and outdoor full year organic revenue is unchanged at down 1% at the midpoint, plus or minus 50 basis points, with relatively flat pricing for the full year. We have updated our expectation for the industrial segment to be down 1% at the midpoint plus or minus 50 basis points. This assumption now incorporates more pronounced global automotive production headwinds than our prior guidance and assumes that the fourth quarter organic revenue will be in a similar zone to that at the end of the third quarter. Broadly, we remain positive about our industry's long term growth prospects. Near term, we expect markets to remain choppy and soft until interest rate reductions have greater effect, global automotive production fully corrects and the U.S. Election result is known. We remain committed to our investments for share gain, and the margin expansion journey that is generally within our control.
Turning to SG&A, we are maintaining a disciplined approach to cost management given the near-term market softness, while prioritizing investments for long term organic growth. Our planning assumption for innovation, brand, marketing activation and technology growth investments remains an incremental $100 million in 2024. We expect full year 2024 SG&A as a percentage of sales to be in the low 21% zone. We expect total company adjusted EBITDA margin to approximate 10% for the full year, supported by savings from the transformation program. Our adjusted segment margin assumptions for tools in outdoor and industrial are relatively consistent with our prior plan and expected to be up year-over-year. Our adjusted earnings per share range is $0.40 with variability in market demand being the largest contributor between the high and low end. We remain focused on our goals for adjusted gross margin, and expect to manage SG&A thoughtfully in this environment while working hard to make the investments that position the business for long-term growth.
Turning to other elements of guidance, GAAP earnings include pre-tax, non-GAAP adjustments ranging from $455 million to $485 million, unchanged at the midpoint versus prior guidance. These charges largely relate to the supply chain transformation program, the second quarter environmental reserve adjustment and the non-cash brand impairment charge from the third quarter. The adjusted tax rate is expected to be 10% for the full year which will imply a tax benefit in the fourth quarter. Other 2024 guidance assumptions at the midpoint are noted on the slide to assist with modeling.
In summary, we remain focused on executing our supply chain improvements to further improve gross margin and earnings. Our progress to date supports our narrowed full year earnings and free cash flow outlook. We remain confident that our actions to drive towards our target of 35% plus adjusted gross margin while funding additional organic revenue growth investments will continue to generate positive results. Our top priorities remain delivering margin expansion, generating cash and further strengthening the balance sheet to position the company for long-term growth and value creation. With that, I will now pass the call back to Don.
