Donald Allan, Jr.
President & Chief Executive Officer at Stanley Black & Decker
Thank you, Dennis, and good morning, everyone. Stanley Black & Decker's second quarter performance represented strong execution across the organization, driving significant progress towards our business transformation objectives on multiple fronts.
Before I get into the results, I'm extremely pleased to welcome Chris Nelson to our leadership team, and we have him joining us on the call for Q&A today. Chris started in June as our Chief Operating Officer and President of our Tools & Outdoor business. Chris is an experienced global business leader with strong industry knowledge and a successful track record of implementing growth strategies, which have delivered customer-centric innovation and profitable market-share expansion. I am excited to see Chris assume leadership of the Tools & Outdoor business. He is bringing new energy and perspective which will further position us for strong execution and faster profitable growth. Welcome, Chris.
With this critical appointment, Stanley Black & Decker's senior leadership team is now in place. Together, we will bring our shared vision to life. Optimizing the company around our core businesses and strong portfolio of global brands, as we execute our strategy to generate sustainable growth and margin expansion.
As you'll hear from Pat in a few moments, our cost and supply chain optimization program is ahead of plan for the first six months of 2023 and building momentum. The compelling long-term growth opportunities in the markets we serve combined with the progress we've made transforming our business, including our improved cost position, gives us the confidence to pursue further growth investments in the second half of this year. Deploying these growth investments as part of our $300 million to $500 million target over the next three years is intended to accelerate market-share gains.
As we drive these investment priorities, we are also maintaining our commitment to return value to our shareholders. And to that end, our Board of Directors approved a modest increase to our quarterly cash dividend amounting to $0.81 per share.
Shifting now to our second quarter performance. We demonstrated that we are continuing to advance our transformation journey and ahead of the planned program. Specifically, we reduced inventory by nearly $400 million in Q2, which brings our aggregate program to-date reduction to $1.4 billion since mid-2022. Our global cost reduction program delivered $230 million of pre-tax run-rate savings in the quarter, on track for the expected $1 billion of annualized savings by the end of this year.
Adjusted gross margin for the quarter was 23.6%, a sequential improvement of 50 basis points, our second consecutive quarter of gross margin expansion. And all of these actions translated into $200 million of free cash flow in Q2.
Second quarter revenue was $4.2 billion, which was down versus the prior year due to lower consumer outdoor and DIY volume, as rising interest rates have tempered consumer spending in addition to the negative year-over-year impact of the oil and gas divestiture completed last year. That said, demand remained solid for the professional side of the market, which represents roughly 70% of our Tools business.
As it relates to the end-markets, the U.S. retail point-of-sale for our Tools & Outdoor Products remained in a growth position this quarter versus 2019 levels, bolstered by price and healthy pro demand. Both Tools & Outdoor POS through the first four weeks of July is growing versus prior year, a potentially positive signal for the back half of 2023.
We are also encouraged by stabilizing residential construction market, despite the rising interest-rate cycle. U.S. home starts are running at a pace of 1.4 million units in June, a strong signal that demand for housing remains sound. This is complemented by U.S. permits to build single-family homes rising to a one-year high and positive trends in housing completions.
Additionally, contractor backlog in the U.S. remained healthy for repair and remodel activity. The European markets are experiencing similar trends with softer DIY markets balanced with a healthier level of construction activity and professionals with backlogs through the end of this year. And then finally, our channel partners continue to be focused on optimizing inventory levels, and we expect that to be a modest headwind throughout 2023.
Across our Industrial end-markets, we are seeing continued strength in global automotive and aerospace. So, while the end-markets across Stanley Black & Decker remain relatively stable with pockets of strength, we are monitoring the demand environment, and continue to plan for a range of outcomes, and we'll respond accordingly if we see current trends shift.
Operationally, we continue to be focused on the prioritization of inventory reduction and cash generation. With 2Q adjusted diluted EPS coming in at a loss of $0.11, which was better than our plan. Due to the solid progress we have made on our key financial goals in the first half, we are narrowing our 2023 full-year adjusted diluted EPS guidance to a range of $0.70 up to $1.30; and narrowing our free-cash flow range to $600 million to $900 million. Pat will provide more color on this later in our presentation.
Now let me walk through the details of our business segment performance. Beginning with Tools & Outdoor, total revenue was $3.5 billion, down 5% organically versus prior year. That favorable price realization was more than offset by volume declines. We continue to make progress on the Tools and Outdoor adjusted operating margin, which was 4.5%, up 150 basis points sequentially driven by benefits from volume leverage and cost control. Versus prior year, our operating margin rate was down as price realization was more than offset by selling through high-cost inventory, planned production curtailment costs and lower volume.
I would now like to provide some more detail on our various tools and outdoor geographies. North America was down mid-single-digits organically, weighted by lower consumer Outdoor and DIY tool demand, as well as modest customer destocking. Organic revenues were stronger sequentially as we lapped tougher comparables, and saw benefits from better order fill rates with our customers, while leveraging strength and professional demand.
Our European revenue was down 1% organically with bright spots in the U.K. and Southern regions as they both posted high-single-digit organic growth. The emerging markets performance was down 3% organically. However, when you exclude the impact from our Russian business exit, the remaining countries had high-single-digit organic growth. This was led by strong demand in Brazil, particularly within the professional channels.
Moving to our strategic business unit performance. We experienced an outdoor organic revenue decline of 12%. As widely reported by many in this industry, the challenging start to the outdoor season persisted for the entire season, and we did experience notable softness in POS and replenishment in the quarter, especially surrounding higher price point retail product.
The hand tools business was flat organically versus prior year, and overcame softer DIY volume with international growth and certain categories strength. Notably, DEWALT storage solution growth including the expanded top-line and TOUGHSYSTEM 2.0 portfolio offerings introduced earlier this year. Power Tools declined 4% organically as softer consumer market demand persisted and customers remain cautious with inventory levels. This result was notably better than the first quarter, as we saw continued Pro momentum, coupled with positive impacts from a healthier supply-chain, leading to better service levels and increased promotional opportunities, particularly with DEWALT and Craftsman.
Now shifting to our Industrial business, which had 3% organic growth in the quarter. The total segment revenue declined 5% versus 2Q 2022, as price realization was more than offset by last year's oil and gas divestiture and currency. We improved adjusted operating margin by 370 basis points versus prior year, including continued price realization and cost actions to deliver adjusted operating margin of 13%. This represents strong execution and a great financial outcome this quarter for our industrial team.
Within this segment, Engineered Fastening organic revenues were up 8%, including aerospace growth of 31% and auto growth of 15%, as we captured cyclical rebounds in these markets, along with share gains. This favorable performance was partially offset by industrial fastening and attachment tools organic revenue declines, primarily as a result of customers destocking to optimize their inventory levels.
While long-term fundamentals for growth remains solid, we believe temporary channel inventory reductions will continue to impact these industrial businesses in the second-half of the year as well.
In summary, the team continues to navigate market conditions with several pockets of strength and a few areas of pressure, while we continue to improve our margins. I want to thank the entire Stanley Black & Decker organization for your focus on our key priorities. The progress to date is very encouraging and energizing as we take the next several steps of our business transformational journey.
Turning to the next slide, I would like to underscore the importance of the strategy that we launched a year ago to transform Stanley Black & Decker to accelerate market-share gains and drive consistent organic growth. Our teams around the world are gaining traction and executing on our primary areas of focus. One -- streamlining and simplifying the organization as well as shifting resources to prioritize investments that we believe have a positive and more direct impact for our end-users and various channel customers. Two -- accelerating the operations and supply-chain transformation to return adjusted gross margins to historical 35%-plus levels, while improving fill rates to better match inventory with customer demand. Three -- prioritizing cash-flow generation and inventory optimization. And four -- continuing to advance innovation, electrification and global market penetration to achieve organic growth of two to three times the market.
Our business transformation is our path to continuing to enhance our customer and end-user experiences, while delivering on our financial commitments and enabling the pursuit of strategic growth investments behind our iconic brands, innovation engine, electrification and commercial activation. Key investments in innovation, coupled with market activation are being accelerated to maximize the impact of our product launches with our global customers and end users. For example, our fully-integrated Craftsman campaign was built to drive traffic to our key retail partners, and sent repeat purchases and engaged new users. To date, we've shown strong initial results breaking through the industry clutter. Since the campaign launched in the second quarter, we've driven both online and offline traffic to retail and demonstrated improved tools point-of-sale run rate versus the prior year to support brand market-share growth. We're excited to see continued positive momentum from this exciting Craftsman brand campaign.
We are also leveraging the strength of our DEWALT brand with the Pro inspired product roadmap to expand core innovation, as we release enhanced product offerings to improve the end-user experience. We recently launched two new DEWALT field head ratchets. The 20-volt MAX XR, as well as the extreme 12-volt MAX options; delivering power, versatility and durability. Engineered with the professional in mind, particularly automotive, electrical and mechanical tradespeople. The innovative design meets the needs of pros across industries on any job site.
The new DEWALT 20-volt MAX XR brushless cordless rivet tools were also introduced this quarter, designed for precision fastening and prefabrication assembly, HVAC, roofing and automotive applications. These tools have features such as on-board nose piece storage and a mandrel collector to catch rivets after each shot. Lastly, we introduced a new DEWALT 25-foot LED tape measure, a great example of core innovation within our Tough Series product-line.
Our engineering team continues to advance our innovation roadmap with best-in class products and solutions for our end-users, as we electrify and enhance safety on the job site, as well as push the bounds of power and performance across our categories.
Let me now turn the call over to Pat to share the latest progress updates on our transformation, financial insights on the quarter, and our latest outlook.
