A2 Milk applied for FDA approval in May Photo: 123rf
Speciality milk producer A2 Milk has received the green light to sell infant milk formula products into the United States.
The company applied to the US Food & Drug Administration (FDA) in May for approval to sell its speciality infant formula products to fill a supply shortage in the country.
A2 Milk said it has received confirmation from the FDA that its application to import, sell and distribute its platinum infant formula (for stages one and two) had been approved through to 6 January next year.
The company was also able to supply stage three toddler products, which did not require discretion from the FDA.
A2 Milk's share price surged during early trade following the announcement, up 40 cents or 7 percent.
Its major supplier Synlait's share price also jumped 16 cents, up 5.2 percent, during early trade.
The company forecast sales during its 2023 financial year to be up to 1 million cans, all within the second half, assuming FDA discretion remained in place throughout the period.
A2's annual sales exceeded 30 million cans.
It said actual sales would depend on customer demand, consumer offtake, supply shortages and market conditions.
Managing director and chief executive David Bortolussi, said the company was well positioned to support the US and had the capacity to scale up production in New Zealand.
"We are increasing our supply to respond to this situation, while importantly ensuring that we continue to meet the needs of our other infant milk formula consumers and trade partners in China and other markets.
"If the US requires further support over an extended period, we have the proven ability to scale up significantly," he said.
Infant milk formula producers had been queuing up to restock empty shelves in the US, after the country recently relaxed its import policy to mitigate one of the biggest infant formula shortages in recent history caused by contamination.
Analysts expect short term benefit
Leading brokerage and investment house Forsyth Barr estimated A2 Milk's underlying profit to rise between $4 million and $5m as a result.
"While the opportunity may prove to be a short near-term benefit for A2 Milk ... we view the prospect of material long-term value as unlikely," Forsyth Barr said.
It said the US infant formula market represented 15-20 percent the size of China, had a likely lower margin profile, and was a competitive market due to other companies supporting the US shortage, with the country also being a concentrated market prior to the shortage earlier this year.
The shortage in the US was largely over, with major producer Abbott returning to the market in July, Forsyth Barr said.
However, it said the infant formula move may help A2 Milk's liquid milk prospects in the US.
A2's US liquid milk business has been a "drag" on underlying profit, it said.
"The sale of A2 platinum infant formula into the US means it is highly unlikely for A2 Milk to discontinue its already established liquid milk business over the next two to three years and does likely provide some distribution synergies," it said.