Sector Snap: Court ruling boosts cigarette makers

Shares of tobacco companies traded higher Friday after a federal appeals court ruled in the industry's favor, blocking the Food and Drug Administration requiring large, graphic health warnings about the risks of smoking on cigarette packages. The U.S. Court of Appeals in Washington affirmed a lower court ruling that the requirement ran afoul of the First Amendment's free speech protections.

The court tossed out the requirement and told the FDA to try another approach. Shares of Reynolds American Inc., maker of Kool and Camel cigarettes, rose 21 cents to $45.25 in afternoon trading. Shares of Altria Group Inc., which sells Marlboro cigarettes, rose 29 cents to $33.74 in midday trading. Altria was not part of the lawsuit. Shares of Lorillard Inc., which makes Newport cigarettes, bucked the trend, declining 28 cents to $127.77. Citi analyst Vivien Azer said the decision was a net positive for the tobacco industry, which has been grappling with FDA regulation since the passage of the Tobacco Control Act of 2009.

Some of the nation's largest tobacco companies sued the government to block the mandate to include warnings showing the dangers of smoking and encouraging smokers to quit lighting up. They argued that the proposed warnings went beyond factual information into anti-smoking advocacy. The government argued the photos of dead and diseased smokers are factual. The nine graphic warnings proposed by the FDA include color images of a man exhaling cigarette smoke through a tracheotomy hole in his throat, and a plume of cigarette smoke enveloping an infant receiving a mother's kiss.

These are accompanied by language that says smoking causes cancer and can harm fetuses. The warnings were to cover the entire top half of cigarette packs, front and back. The court wrote that the FDA "has not provided a shred of evidence" showing that the warnings will "directly advance" its interest in reducing the number of Americans who smoke. The Justice Department said it would review the appeals court ruling. Public health groups are urging the government to appeal the decision.