UPDATE 4-Hershey profit tops view, outlook up; shares rise

* Q2 EPS ex-items $0.43; Wall Street view $0.35

* Sales rise nearly 6 percent

* Raises full-year earnings and sales forecast

* Shares up 6.4 percent (Adds analyst comment, details, byline; updates stock activity)

By Aarthi Sivaraman

NEW YORK, July 23 (Reuters) - Hershey Co (HSY.N) posted a higher-than-expected quarterly profit, gaining U.S. market share despite price increases, and raised its full-year outlook, sending its shares up more than 6 percent on Thursday.

The maker of Hershey's Kisses and Reese's Peanut Butter Cups got a boost from price increases it took last year to make up for then-soaring ingredient costs. It also benefited as some thrifty consumers switched to its chocolates from gourmet brands to save money in the recession.

"The good news is that Hershey is well-represented in the mainstream area, so they are pretty well positioned as consumers trade down," said Edward Jones analyst Jack Russo.

Second-quarter profit rose to $71.3 million, or 31 cents a share, from $41.5 million, or 18 cents a share, a year earlier.

Excluding charges to overhaul its supply chain, Hershey earned 43 cents a share, topping the analysts' average forecast of 35 cents, according to Reuters Estimates.

Sales rose nearly 6 percent to $1.17 billion.

The company raised its 2009 sales and earnings forecasts, citing factors such as easing commodity costs, a strong start to the current quarter, and benefits from higher ad spending.

Hershey expects 2009 profit growth to slightly surpass its long-term goal of 6 percent to 8 percent, with sales growth within its long-term target of 3 percent to 5 percent. An earlier forecast fell short on both counts.

PREMIUM BRANDS SUFFER

The company said it planned to close its online gift business, which sells items like tins of dark-chocolate-covered pretzels and personalized Hershey's bars.

Hershey will also study its premium brand strategy so "as consumers return to this subsegment in the future, we are better positioned to participate," Chief Executive David West said on a conference call.

But Hershey is not cutting back on advertising, especially as it seeks to entice shoppers during the holiday season. It said it planned to spend 40 percent to 45 percent more on advertising in 2009.

"They obviously should be spending on advertising (and) promoting their mainstream brands," Russo said. "You don't want to throw good money after a lost cause."

While the stronger U.S. dollar will hurt the value of overseas sales this year, the international business is "on track" on a constant currency basis, the company said.

Hershey raised prices 10 percent last August to help offset rising costs for commodities such as cocoa.

Although commodity prices are still high, they have eased from a year ago, and Hershey said cost increases for 2009 would be below its original estimate of $175 million. It does not expect dairy prices to increase materially this year.

Hershey shares were up $2.50, or 6.4 percent, at $41.45 on the New York Stock Exchange. (Reporting by Aarthi Sivaraman, editing by Maureen Bavdek, John Wallace and Lisa Von Ahn)