a2 Milk Company (NZX:ATM) gets FDA nod to supply infant milk formula in US

Highlights

• A2 Milk company gets FDA approval to sell its infant milk formula in the United States.
• This decision has come after the FDA once deferred its entry in August.
• ATM shares jumped almost 8% today (3 November).

In an announcement on the NZX today (3 November 2022), New Zealand’s milk and infant formula company a2 Milk Company (NZX:ATM) revealed that it had received confirmation from the US Food and Drug Administration (FDA) that it could sell and distribute its a2 infant milk formula in the United States.

Accordingly, on the news, a2 Milk’s shares jumped 7.48% to NZ$6.18 today (3 November).

As per the update, the FDA has been allowing products made overseas to enter the highly controlled US infant formula market due to a shortage of infant formula in the US.

a2 Milk said that the FDA's move presented an opportunity for the company  to develop its brand in the infant milk category over the long term.

It may be recalled that in August 2022, the FDA had deferred a2 Milk’s request to sell products in the US.

The FDA has allowed a2 Milk’s Platinum infant formula for babies up to six months old and the a2 Platinum follow-on formula for babies 6–12 months old.  The update revealed that these products would be sold at major US retail stores. 

 Sales predictions

According to the company, it is difficult to predict the sales potential of this formula in the US market. In the near term, sales in 2023 are expected to be about 1 million cans, primarily in the second half of 2023. However, the actual sales would depend on customer demand, consumer offtake, and supply shortages over a period of time added the company’s announcement.

In terms of impact on earnings, the company expects this move to be incrementally beneficial, the gross margins to be lower than average, and distribution costs to increase.

David Bortolussi, the CEO and managing director of a2 Milk, said that the company was very pleased with the FDA announcement.

He stated that the company would be increasing its supply to respond to the situation, while continuing to supply to its trading partners in China and other markets, including the domestic market.

Renewal of contract with China’s State Farm

On 3 October 2022, a2 Milk renewed its exclusive import and distribution arrangements with China State Farm Agribusiness Holding Shanghai Co (CSFA).  The import agreement was extended for five years. CSFA has been a distribution partner of a2 Milk Company for over nine years. This extension was important for strengthening its business in China, said a2 Milk’s CEO