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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 reduce 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.
inv reduction
Transcript
2023 Q4
13 Feb 24
But it's really going to depend on our volume next year. It's really going to depend on, has the consumer stabilized in the rebalance between goods and services and has the outdoor business stabilized post COVID.
key question on end demand
Transcript
2023 Q3
2 Nov 23
think on a full year basis, for '24, we would expect full year gross margins around 30%, potentially a little bit higher than 30%. Obviously, that means exiting above 30% because we come in somewhere in the 28-ish range.
And so I think you have it right. It is an exit rate that's going to be somewhere in the low 30s. We'll update to what degree that is in January.
GM colour for 2024 -- should see expansion
Transcript
2023 Q3
2 Nov 23
And then on free cash flow, much of this year's free cash flow is generated by working capital dynamics. And much of those dynamics are continuing to play out according to plan and forecast. And that's largely why the free cash flow guide stays what it is for the year and the quarter.
fcf driven by WC -- undersrabdavle but theres still a lot pf inventory to shift
Transcript
2023 Q3
2 Nov 23
And the $4 to $5, I would say, given the performance of the business in the back half of the year in a dynamic market, I would still say we see the $4 to $5 as a reasonable range. Certainly, it's dependent on the macro and the deflation versus inflationary environment. .
I would say that the $4 to $5 anticipates a stable or improving macro.
If you're at a stable side of the macro, you're probably on the lower side of the range. And if you're at an improving macro, you kind of go towards the higher side of that range.
$4-$5 EPS in 2024?
Transcript
2023 Q3
2 Nov 23
As it relates to complexity reduction, our teams are assisting customers as they transition to replacement products with the goal of exiting 30,000 SKUs by the end of 2023.
exiting 30k SKU by the end of 2023
Transcript
2023 Q3
2 Nov 23
Our cost reduction program delivered approximately $215 million of pretax run rate cost savings in the quarter, bringing our aggregate savings to approximately $875 million since program inception. This positions us well to deliver or slightly exceed our $1 billion run rate savings target this year and to deliver $2 billion run rate savings by 2025.
As it relates to the supply chain transformation, strategic sourcing initiatives remain the largest contributor to supply chain savings since program inception. The early actions focused on strategic components and logistics as well as other areas.
We have now covered approximately 2/3 of the targeted procurement spend, establishing a carry-in savings trajectory consistent with that contemplated in the 2024 program target.
Our supply chain management and engineering teams will continue to drive sourcing improvement through 2025 and beyond.
ahead of plan on cost reduction plan
Transcript
2023 Q3
2 Nov 23
We made substantial progress in improving adjusted operating margin to 9.3%. This was a sequential step-up of 480 basis points and 250 basis points better than last year. This improvement was driven by reduced sell-through of high-cost inventory, supply chain transformation savings and reduced shipping costs, which were partially offset by lower organic revenue.
operating margin improvement
Transcript
2023 Q3
2 Nov 23
Looking ahead to 2024, we expect additional sequential and year-over-year gross margin gains. We delivered approximately $300 million of inventory reduction this quarter, which brings us to $1.7 billion reduction since mid-2022 when we started this journey. This contributed to over $360 million of Q3 free cash flow generation, which supported our quarterly dividend and $285 million of debt reduction in the quarter.
Benefits from lower supply chain costs contributed to third quarter adjusted diluted EPS of $1.05, which was better than our plan.
inventory reduction
Transcript
2023 Q3
2 Nov 23
Our global cost reduction program delivered $215 million of pretax run rate savings in the quarter, on track for the expected $2 billion run rate savings by the end of 2025. Adjusted gross margin rose to 27.6%, a 400 basis point sequential improvement and 290 basis points favorable as compared to last year.
gm improving as cost reduction program in place
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2023 Q3
2 Nov 23
Our outlook assumes approximately $125 million of annualized innovation and market activation investment with a goal to ultimately deploy $300 million to $500 million over the next 3 years.
looking to deploy 300-500m in investment
Transcript
2023 Q3
1 Nov 23
We expect to pursue further inventory reduction at the pace of $400 million to $500 million per year.
more inventory reduction to coime -- 400 to 500 per year
Transcript
2023 Q3
1 Nov 23
We expect modest inventory improvement in the fourth quarter, which would bring our full year 2023 inventory reduction to at or near our '23 objective of $1 billion as we prepare for next year's outdoor season and supply chain network changes.
Inventory reduction will be a major contributor to our full year free cash flow target of $600 million to $900 million.
inventry reductiion
Transcript
2023 Q3
1 Nov 23
here's more investing we need to do on the digital marketing front, around social media and the activities that we do with our products, to really make our end users as fully aware as to the great innovation machine that we have and what we're putting in the marketplace. Those are things that we have to continue to invest in and so we want to strike the right balance in 2024 of earnings in the sense and cash flow of what's the opportunity for growth as we look at the markets and evaluate that later this year going into 2024.
need to invest in digital
Transcript
2023 Q2
8 Aug 23
And you could build a bullish case that the numbers should be higher for next year, but you do have to factor in the fact that we really want to make sure that we continue to invest in certain key things in our company.
We have to get more resources out on the field, closer to our end users. We need to have more engineering resources in key pockets to drive additional innovation opportunities. We've talked about electrification.
need to invest
Transcript
2023 Q2
8 Aug 23
would say, in the second quarter, we saw consistently weak outdoor, especially for high-price-point items. And we saw the DIY consumer be under a bit more pressure and on the margin both in tools and outdoors and in subsegments of our Industrial business, channel conservancy -- conservatism on inventory.
So all of those things were dynamics that played out. We anticipated them in the second quarter. And that's why, when we gave guidance at the end of the first quarter, we softened up our revenue expectations on the second quarter; and they played out about as we expected in the quarter.
guidance cut?
Transcript
2023 Q2
8 Aug 23
n terms of inventory, we're going to make significant inventory progress this year, but you're correct to point out that, by the time we get to the end of this year, our absolute inventory dollars at the end of this year will be in the $5 billion-ish range, which is around 155 days-ish range, which is higher than our long-term history of inventory levels, which have obviously changed since we acquired an outdoors business from the legacy Stanley Black & Decker levels, but still below 155. We'll continue to make progress and we will talk about that more specifically when we give guidance for next year, but we will continue to make progress and be working towards a level that is below 150 across a multi or rather below 140 across a multiyear time horizon.
invenriry reduction plans -- will stll be above gistorucakl sat year end
Transcript
2023 Q2
8 Aug 23
Think of every one of the next few years going through the end of 2025 as $500 incremental million of COGS savings off of our revenue base.
You're talking 200 to 300 basis points a calendar year of gross margin improvement.
cost cuts will aid ~~GM
Transcript
2023 Q2
8 Aug 23
We have talked about in previous calls a $5 -- or a $4 to $5 range for 2024 for EPS.
Given what we're seeing in the back half and what we're currently projecting for revenues, the improvement in the gross margins, we're making some investments in SG&A that will plant some seeds for future share gain activity. We do think we're positioning ourselves to be in that $4 to $5 for next year, depending on a couple of factors.
2024 -- eps 4-5 range
Transcript
2023 Q2
8 Aug 23
It's maybe 3.50 of annualized EPS based off your second half guide at the midpoint.
You had talked about a $5-ish EPS for next year previously, so I just wondered sort of any updated thoughts on that EPS step-up into 2024.
2024 guidnce?
Transcript
2023 Q2
8 Aug 23