Pilgrim's Pride Inc. (PPC), the No. 2 U.S. chicken producer, Monday said quarterly net income fell and earnings could decline in the new fiscal year.

The company, whose shares fell more than 2 percent, said it was unclear how the deadly bird flu (search) virus in Asia and Europe could affect its performance this year.

Demand for U.S. chicken products could increase as flocks in countries hit by bird flu are destroyed, Chief Executive O.B. Goolsby (search) said during a conference call with analysts.

But consumers could also stay away from chicken altogether, no matter where it is grown, he said.

"We do believe this will be a potential positive for the U.S.-exported products."

Higher oil prices could also prove a mixed bag. Consumers could switch to lower-priced chicken from red meat as higher gasoline and heating costs squeeze their budgets, Goolsby said. But higher costs for diesel fuel and petroleum-based packaging could cut into profits.

Net income fell to $74.7 million, or $1.12 per share, in the fourth quarter ended Oct. 1 from $75.3 million, or $1.13 per share, a year earlier, which included several one-time items.

The results met the high end of the company's outlook and exceeded the average forecast from analysts polled by Reuters Estimates by 2 cents a share.

Pilgrim's Pride (search) on Oct. 24 had raised its quarterly earnings forecast to between $1.07 and $1.12 a share because of better-than-expected U.S. chicken sales and improved prices in its Mexican operations.

Sales slipped to $1.483 billion from $1.486 billion.

A lower-than-expected tax rate added 10 cents a share to earnings, said J.P. Morgan Securities analyst Pablo Zuanic, who rates the stock at "buy."

"Except for the tax rate issue, we see this is a good quality quarter as gross margins were significantly better than expected ... with the company reinvesting some of that in more marketing and brand support," Zuanic said in a research note.

For 2006, the company forecast earnings per share of $3.50 to $4, compared with $3.82 before one-time items in fiscal 2005. Analysts on average forecast $3.68.

Pilgrim's Pride sees sales at $5.6 billion to $5.81 billion, compared with Wall Street expectations of $5.85 billion.

Earnings in the fourth quarter of fiscal 2004 were 99 cents a share excluding an after-tax gain of $14.8 million from an insurance recovery related to a 2002 recall of deli meats and turkey-unit restructuring charges of $5.1 million.

Pilgrim's Pride shares fell 72 cents, or 2.2 percent, to $32.11 in midday New York Stock Exchange trade.

At Friday's market close, the shares traded at about 8.9 times expected fiscal 2006 earnings, compared with 13.9 percent for top U.S. poultry producer Tyson Foods Inc.