Inghams Group (ASX: ING) has reported a sharp fall in FY26 profit as higher labour, feed, cooking oil and other operating costs continued to squeeze the poultry processor, while warning that chicken prices may need to rise to offset a fresh wave of inflation.

Revenue increased 2.4% to $3.23 billion in the year to June 30, but underlying EBITDA fell 21.2% to $186.4 million and net profit after tax dropped 61.5% to $34.6 million. The weaker bottom line was reflected in the final dividend, which was reduced to 6.1 cents per share from 8 cents a year earlier.

There were some more encouraging signs beneath the headline result. Core poultry volumes increased 1.9%, while the company generated $82.3 million in cost savings, reaching the upper end of its target. Net debt also fell by $27.1 million to $403.3 million.

Inghams said its second-half performance was materially stronger than the first, with improvements in production, inventory and supply chain conditions helping the business recover from earlier inefficiencies.

The company is nevertheless entering FY27 with a significant cost challenge. Inghams is facing about $130 million in inflationary costs and expects to recover some of that pressure through higher volumes and pricing. Feed is typically the single largest input cost in chicken production and moves with grain prices, leaving processors with limited direct control over a large share of their cost base even as labour, freight and cooking oil costs also climb.

Chief executive Ed Alexander said the company has prepared for the possibility of avian influenza, including examining how overseas poultry operators have managed outbreaks and developing contingency plans across its Australian network. The preparation reflects recent experience across the sector: Australian poultry producers have dealt with H7 avian influenza detections in recent years, including outbreaks in Victoria and New South Wales in 2024 and further cases in Victoria in 2025, which triggered quarantine measures and large-scale culling of birds. Inghams processes around 40% of Australia's chicken — it is one of the country's two major integrated processors, alongside privately held Baiada, whose brands include Steggles — and has facilities across six states, which the company says gives it flexibility to continue supplying customers if an individual facility is disrupted.

The immediate trading environment remains difficult. Alexander said July and much of August had been soft, with excess chicken supply in the wholesale market contributing to weaker conditions. Australia imports almost no chicken meat under strict biosecurity rules, so wholesale supply is determined almost entirely by domestic production. He said there was no food safety issue associated with bird flu and no impact from it through the company's sales channels.

The FY26 result leaves Inghams with a recovery story rather than a clean earnings growth story. Core volumes are moving higher and the company has made progress on costs and debt, but margins remain exposed to inflation across feed, labour, freight and other inputs. The company also faces the challenge of passing those costs through to customers without damaging demand, and its ability to lift prices while maintaining volume growth will be an important factor in determining whether the earnings recovery can gain traction. Chicken is Australia's most-consumed meat per person, so the outcome of those pricing efforts will be felt in grocery baskets as well as in shareholder returns.

For FY27, Inghams expects core poultry volumes to grow between 2.5% and 4%, with underlying EBIT guidance of $155 million to $180 million.

The stock has already endured a significant decline, with shares down more than 40% over the past year and falling to $2.05 in early Friday trading.