a2 shares jump about 7% after the company says the US Food and Drug Administration has approved a2's application to send infant milk formula products into the US

a2 Milk Company (ATM) shares are rising strongly in an overall soft stock market after the company told NZX that it has been given approval to start selling infant milk formula (IMF) products into the United States.

And the share price of its affiliate Synlait Milk (SML) was also getting a nice bump - as it will be manufacturing the products to be sold into the US for a2.

The a2 shares had jumped about 7% to $6.15 at time of writing after the company advised prior to the market opening that the US Food and Drug Administration had cleared it to export IMF. The Synlait price had gained over 5% to 3.24. Both prices fell back somewhat later in a falling market.

The FDA has been "exercising enforcement discretion" over IMF imports in order to alleviate a shortage of the product in the US that resulted from supply chain difficulties. 

The a2 company had applied to send product earlier this year but in August was knocked back when the FDA decided to defer consideration of its request. That sent the share price sharply down. At the time, companies that had been given the nod from the FDA to supply the US were Bubs Australia Ltd, UK-based Kendamil, Nestle SA and Danone SA.

However, on Thursday that changed, and up went the share price, as a2 announced that  it received confirmation from the FDA that its application for enforcement discretion to import, sell and distribute a2 Platinum® IMF product (Stages 1 and 2) from New Zealand into the US has been approved. The Company is also able to supply Stage 3 toddler product in addition to this which does not require enforcement discretion.

The company said it believes the US represents "a significant opportunity" to develop its brand in the IMF category over the long term.

Sales during the financial year to June 30, 2023, are expected to be up to 1 million cans all within the second half of that year, assuming enforcement discretion remains in place throughout the period.

"In terms of FY23 earnings impact, whilst incrementally beneficial, the company expects gross margins to be lower than average, distribution costs to be higher due to potential air freight and rework costs in the near term, and incremental marketing and trade investment to enter the category. The Company will provide an update on US IMF distribution gains and sales outlook in connection with its 1H23 interim results release or earlier as appropriate," the statement said.