(Reuters) - Woolworths Group reported lower-than-expected half-year underlying profit on Wednesday, as discounts to lure price-conscious customers squeezed margins and disruptions due to industrial action hurt earnings at its biggest money-making segment, Australian Food.

Earnings for the supermarket chain's Australian Food segment fell 12.8% to A$1.39 billion ($881.54 million) for the six months, mainly due to gross margin impact from higher meat input costs and a customer shift towards more discounted specials.

Australian Food earnings included a one-off impact of A$95 million due to industrial action, and incremental supply chain commissioning and dual-running costs.

Woolworths had reached an agreement with industrial union workers to increase wages in December, after hundreds of workers went on an indefinite strike in retaliation against pay and working conditions at the grocer's distribution centers.

The retailer said its underlying net profit after tax slipped to A$739 million for the six months ending January 5, down from A$929 million reported a year earlier and missing the Visible Alpha consensus estimate of A$770 million.

"While we continue to optimise our promotional activity, cost-of-living pressures for customers persist with value-seeking behaviours and cross-shopping expected to continue," CEO Amanda Bardwell said.

Woolworths said livestock costs in red meat expected to impact gross margins with earnings for Australian Food in the second half reflecting a mid-single-digit decline.

It declared an interim dividend of 39 Australian cents per share, versus 47 Australian cents apiece last year.

($1 = 1.5768 Australian dollars)