Trade worries were set aside today as the market bounced back in advance of earnings reports. The Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) opened higher and rallied through the day.
Today's stock market
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Technology stocks led the market, and the Technology Select Sector SPDR ETF (NYSEMKT:XLK) jumped 1.6%. Banks stocks were laggards a day ahead of some major earnings reports in the industry, with the SPDR S&P Regional Banking ETF (NYSEMKT:KRE) slipping 1.2%.
Meanwhile, Broadcom (NASDAQ:AVGO) announced plans to buy CA Technologies (NASDAQ:CA), causing their stocks to move strongly in opposite directions, and Delta Air Lines (NYSE:DAL) reported earnings growth despite a growing fuel bill.
Broadcom investors less than thrilled with acquisition plans
Connectivity semiconductor supplier Broadcom announced it plans to buy software company CA Technologies for $18.9 billion in cash, sending CA shares soaring 18.7% and Broadcom's stock tumbling 13.8%.
In a deal that has been approved by the boards of both companies, Broadcom is paying $44.50 per share of CA, a 19.6% premium over the stock price at Wednesday's close. The deal will be financed by $18 billion in new debt and a bit under $1 billion in cash on hand. Broadcom expects it can maintain an investment-grade rating on its bonds due to its ability to generate cash and its intention to pay down the debt quickly.
Broadcom specializes in semiconductors for wired infrastructure, wireless, and enterprise storage. CA Technologies sells mainframe and enterprise software, and investors today were scratching their heads about the lack of overlap between the businesses and whether the combined businesses would really be worth more than the separate companies. But CA generates large cash flows from steady, recurring revenue that is based on contracts extending more three years on average, and Broadcom sees the acquisition as a way to create "one of the world's leading infrastructure technology companies," in the words of Broadcom CEO Hock Tan.
Delta overcomes soaring fuel costs
Delta reported a better-than-expected second-quarter profit, but warned of the impact of rising fuel prices, and shares gained 1.8%. Total revenue grew 9.6% to a record $11.8 billion, edging out the $11.7 billion analysts were expecting. Adjusted earnings per share increased 11.3% to $1.77, $0.05 above the analyst consensus, although that was after Delta had slashed its guidance given last quarter of EPS between $1.80 and $2.00.
Excluding third-party refinery sales, revenue growth was 8% and the closely watched metric of passenger unit revenue growth -- the increase in revenue per seat -- jumped 4.4%. Passenger mile yield rose 4.5%, as the airline was able to cover some of the $578 million in higher fuel costs with price increases. Capacity increased 3.5%.
Looking forward, Delta expects the increase in fuel expense for the full year to come to $2 billion, and for earnings per share to be between $5.35 and $5.70, below the $5.74 analysts had been expecting. The company said it is planning on cutting between 0.5% and 1% of underperforming capacity after the summer vacation season, and says that move will help set the stage for a return to margin expansion by year-end.
Overall, investors seemed to approve of the steps the company is taking to compensate for higher oil prices, and the lack of signs of industry overcapacity helped other airlines make share gains today, too.