The A2 Milk Company Ltd (ASX: A2M) share price is charging higher on Thursday morning despite the market selloff.
At the time of writing, the infant formula company's shares are up 9% to $5.77.
This compares favourably to the performance of the S&P/ASX 200 Index (ASX: XJO), which is down 2% this morning.
Why is the A2 Milk share price charging higher?
Investors have been bidding the A2 Milk share price higher today after the company's US operations were given a major boost by the United States Food and Drug Administration (FDA).
According to an announcement, the FDA has approved the import, sale, and distribution of a2 Platinum infant formula products (Stages 1 and 2) from New Zealand through to 3 January 2023. This can be extended through to October 2025 at the FDA's discretion.
A2 Milk was given the thumbs up after making changes to the product design. While the product supplied to the United States will have the same formulation as a2 Platinum, it will have different scoops, mixing instructions, and labelling requirements.
Management estimates that it will ship 1 million cans of its infant formula during the second half of FY 2023. Though, it believes it has the capacity to supply upwards of 9 million cans in the future if required.
One small negative, is that the gross margin on these products is expected to be lower than average. This is due to higher distribution and rework costs, as well as incremental marketing and trade investment to enter the category. As a result, the impact to its earnings is unclear at this stage.
Nevertheless, A2 Milk Company's managing director and CEO, David Bortolussi, was very pleased with the news. He commented:
We are pleased to be able to assist parents and caregivers in the US by providing access to significant volumes of high quality, a2 Platinum infant and toddler milk formula manufactured in New Zealand during this challenging period.
We are increasing our supply to respond to this situation, while importantly ensuring that we continue to meet the needs of our other IMF 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.
Following today's gain, the A2 Milk share price is now up 33% over the last six months.
