UPDATE 2-Tractor Supply Q3 profit beats market estimates

* Q3 EPS $0.60 vs est $0.59/shr

* Q3 rev up 2 pct * Maintains FY '09 view

* Sees margin pressure in Q4 (Adds conf call details)

Oct 21 (Reuters) - Tractor Supply Co (TSCO.O) posted quarterly earnings that topped market estimates by a penny as gross margins improved, and the company managed expenses, inventory levels and discounts better.

However, deflation of about 2 percent will limit chances of margin expansion in the fourth quarter, the company said in a conference call.

Pressure on margins will be partially offset by a favorable mix as it expects to sell more of higher-margin products, it said.

Third quarter gross margin at Tractor Supply, which raised its full-year profit view earlier this month, rose to 32.9 percent of sales, compared with 29.8 percent a year ago.

The company, which expects to open 76 new stores in 2009, said it is looking at capital expenditure of around $70 million to $75 million for the year.

For the third quarter ended Sept. 26, Tractor Supply earned $22.0 million, or 60 cents per share, up from $15.9 million, or 43 cents per share, a year ago.

Revenue at the company -- which sells pet and animal products, maintenance products for agricultural and rural use among others -- rose 2 percent to $747.7 million.

Analysts on average were looking for a profit of 59 cents a share, before items, on revenue of $749.3 million, according to Thomson Reuters I/B/E/S.

Tractor Supply's core consumable, usable and edible categories, including animal and pet related products were key merchandise drivers this quarter, and comparable transaction count increased 5.9 percent.

Shares of the Brentwood, Tennessee- based company were up 2 percent at $51.83 Wednesday after the bell. They had closed at $50.96 on Nasdaq. (Reporting by Nivedita Bhattacharjee in Bangalore; Editing by Aradhana Aravindan)