WHR/John – In the LTP, we sold the 2020 $130 puts for $11.20 and they are back at that price now after falling 14% but what an over-reaction to $3.20/share, which missed $3.63/share expected but last year was $3.35 and it was raw material inflation (steel tariffs) and poor exchange rates that killed them – not something wrong with the company.  Margins actually EXPANDED compared to last year. 

Adjusted operating profit (EBIT) declined 2% to $343 million from $350 million in the year-ago quarter. However, operating margin expanded 20 basis points (bps) to 6.7%, aided by favorable product price/mix and restructuring benefits, partly negated by raw material inflation, unit-volume declines and unfavorable currency.

Adjusted operating margin of 3.8% contracted 200 bps, mainly due to a trucker strike in Brazil. In dollar terms, operating income declined 42.1% to $33 million.

Revenues from Asia improved nearly 14.7% to $428 million from $373 million in the prior-year quarter. Excluding currency effects, revenues rose 14.5%. Moreover, the segment reported adjusted operating profit of $43 million, up significantly from $10 million in the year-ago quarter. Adjusted operating margin expanded 760 bps to 10.1%. The improvement was driven by gains from an acquisition-related government incentive as well as a favorable product price/mix, partly offset by raw material inflation and negative currency movements.

They also bought back $1Bn worth of their own shares – always stupid.  

Following the dismal second quarter and expectations of increased raw material costs in the future, Whirlpool cut its GAAP and adjusted earnings per share forecast for 2018. It now envisions adjusted earnings per share to be $14.20-$14.80 compared with the prior guidance of $14.50-$15.50. On a GAAP basis, it now anticipates earnings of 15-75 cents per share compared with $12.30-$13.30 per share expected earlier.



The company expects to gain from a favorable product price/mix and share repurchases through the rest of the year. However, lower global revenue growth, expectations for higher global cost inflation and soft EMEA performance are likely to weigh on the results.

I don't really care what expectations WERE, I care that the company WILL now earn $14.50/share and they've got plenty of cash so I have no problem at all giving them 10x earnings, which would be $145/share, not $130.  We'll see who low they go but we've held the short puts since Jan and this will be our first chance to add a bull call spread so – OPPORTUNITY!

As a new trade, I'd still sell the 2020 $130 puts (now $17) as a base:

• Sell 5 WHR 2020 $130 puts for $17 ($5,100) 
• Buy 10 WHR 2020 $120 calls for $21 ($21,000) 
• Sell 10 WHR 2020 $140 calls for $12 ($12,000) 

That's net $3,900 on the $20,000 spread that's $10,000 in the money at $130 so all WHR has to do is stop falling and you do very well up to a max profit of $14,100 (360%) if they manage to make it back to $140 in 18 months.

That's so good, we'll likely be MORE aggressive than that in the LTP – just waiting to see where they bottom.  I'd do the put sale now though, as you never know if those prices will last.  

Wheee, nice dip – don't waste it being greedy on the index shorts!

/YM 25,200 is now the stop line.