UPDATE 3-Hershey U.S. market share stabilizes, shares rise

* Commodity costs still weigh, market share stabilizes

* Sales up 6.4 percent to $1.49 billion.

* Maintains 2009 sales, earnings outlook

* Shares up 4 percent (Recasts; Adds company, analyst comments, stock moves, byline)

By Brad Dorfman

CHICAGO, Oct 16 (Reuters) - Hershey Co (HSY.N) posted a quarterly profit that met Wall Street expectations and maintained its market share in the candy aisle even as the U.S. economy weakened, sending its shares up 4 percent.

The maker of Hershey's Kisses and Reese's peanut butter cups still predicts slower sales growth in 2009 after higher costs for nuts, cocoa, sweeteners and energy forced it to raise prices.

But Hershey's 2008 earnings forecast remained above the average analyst estimate and its U.S. market share, which had been falling, was about flat with a year earlier.

"It seems that some of the investments they're making to market their brands more and smarter are paying off in market-share stabilization," said Edward Jones analyst Matt Arnold.

Hershey has increased marketing spending to help stem the losses to rivals such as M&M's maker Mars Inc.

Hershey announced a 10 percent price increase in the United States in August to cope with higher costs. Investors were watching consumer reaction to the increases as they also grappled with higher food and fuel costs, a housing slump and credit crisis.

On Thursday, the company said it expected the volume of products it ships to be down next year. Hershey is seeing a slowdown in the premium chocolate market, a major growth arena for the industry, but one in which Hershey was slow to play.

"Premium as a growth driver is slowing out there," Hershey CEO David West said during a conference call with analysts.

That has contributed to mixed results for the premium Starbucks (SBUX.O) chocolates that Hershey launched earlier this year. But it has not had much impact on Bliss, a key new mid-priced product for the company that has so far exceeded internal targets, West said.

PROFIT UP

Hershey's third-quarter profit rose to $124.5 million, or 54 cents a share, compared with $62.8 million, or 27 cents a share, a year earlier.

Excluding costs to overhaul its supply chain, earnings were 64 cents a share, matching the average analyst estimate posted by Reuters Estimates and down from 68 cents a year earlier.

Sales rose 6.4 percent to $1.49 billion. Adjusting for the impact of purchases made by retailers ahead of the price increase, sales would only have been up 4 percent.

"Sales looked better than they actually were, given the early buy-in ahead of the price increase," Morningstar analyst Erin Swanson said. "One of the things we're paying attention to is how volumes hold up in the fourth quarter."

For all of 2008, Hershey said it expects earnings before one-time items to be toward the lower end of its $1.85 to $1.90 forecast range, with sales up 3 percent to 4 percent. Analysts on average forecast $1.83 per share.

For 2009, the company forecast that earnings from operations will increase, but by less than its 6 percent to 8 percent long-term target. It also forecast a 2 percent to 3 percent sales increase.

Hershey shares were up $1.80 at $34.77 in mid-day trading on the New York Stock Exchange. The stock is down 12 percent this year, about in line with the drop in the Standard & Poor's packaged-foods index .15GSPFOOD. (Editing by Maureen Bavdek)