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* Q2 adj EPS $0.51 tops Wall St estimate of $0.46
* Sales rose 5.3 percent to $1.23 bln
* Affirms '10 adj EPS view of $2.47-$2.52
* Shares down 4.5 pct (Adds comments from company, analyst)
By Martinne Geller
NEW YORK, July 22 (Reuters) - Hershey Co (HSY.N) posted a higher-than-expected quarterly profit as increased advertising helped sales, but the U.S. chocolate maker did not raise its full-year earnings forecast, and its shares fell 4.5 percent.
The maker of Hershey's Kisses, Kit Kat bars and Reese's peanut butter cups stood by its 2010 forecast for profit per share before items and reduced its forecast for net profit, in part because of an impairment charge from the Godrej Hershey joint venture in India, which has grown slower than expected.
Hershey also tightened its full-year sales forecast and said it planned to spend more than expected on advertising, although it will not see the boost to revenue until next year.
"While the reluctance to boost guidance may trouble some investors, we believe the company is taking advantage of the current momentum to get a head start on 2011," said JPMorgan analyst Terry Bivens in a research note.
Hershey's net earnings fell to $46.7 million, or 20 cents per share in the second quarter from $71.3 million, or 31 cents per share, a year earlier.
The latest results included charges of 11 cents per share for a supply chain modernization program and 20 cents to write down goodwill for the India venture,
Excluding the charges, earnings were 51 cents per share, which topped the analysts' average estimate of 46 cents, according to Thomson Reuters I/B/E/S.
Net sales rose 5.3 percent to $1.23 billion, helped by a small benefit from foreign currency exchange rates and some price increases.
In the second quarter, the company's advertising expenses rose about 50 percent, partly due to the launch of new products including Hershey's Special Dark, Almond Joy and York Pieces.
The company said it was planning additional increases in advertising for the full year, with those expenses expected to increase about 45 percent to 50 percent in 2010. It had earlier forecast a rise of 35 percent to 40 percent.
Some of that advertising budget will go toward growing Hershey's business in international markets, where quarterly sales rose at a low double-digit rate, but still make up a much smaller percentage of total sales than for many other food companies, said Edward Jones analyst Jack Russo.
Ever since the takeover of Cadbury earlier this year by Kraft Foods Inc KFT.N, analysts have been pressing Hershey about its strategy for international expansion.
Hershey's $44.7 million writedown in goodwill from its India business highlighted how difficult international expansion can be and likely contributed to the stock's sell-off, Russo said.
Hershey executives said the writedown followed a reassessment of the value and growth potential of the joint venture, which was formed in 2007.
The company cited slower realization of development plans, increased sugar costs and a weakened economy that delayed the expansion of distribution and the entry of higher-priced candies in India, where Cadbury is already household name.
Still Hershey said India remains a key growth market.
"We will continue to apply our global confectionery know-how to India and other international markets, as well as to look for other opportunities in key geographies," said Chief Executive David West on a conference call.
He said Asia and Latin America were Hershey's top priority in terms of acquisitions.
Hershey shares have gained 39 percent this year through Wednesday's close, outperforming a slight drop in the Dow Jones U.S. Food and Beverage Makers Index .DJUSFB.
Even with Thursday's decline, Hershey stock trades at roughly 19 times Russo's 2010 earnings estimates, while other food stocks are closer to 14 or 15 times his earnings view.
"When you're priced for perfection, which essentially is what they were, any little hiccup is going to set it off," Russo said, referring to the India writedown.
Hershey said it still expected adjusted earnings of $2.47 to $2.52 per share for 2010, with net income of $2.04 to $2.12. Its net sales are expected to rise about 7 percent.
Last month, Hershey forecast 2010 net income of $2.31 to $2.38 per share on a net sales gain of 6 percent to 7 percent.
Hershey shares were down $2.23, or 4.5 percent, at $47.59 in afternoon trading. (Reporting by Martinne Geller; editing by Maureen Bavdek, Lisa Von Ahn and Andre Grenon)