Chocolate maker Hershey Co defended its decision to back away from a Cadbury bid and a bigger stake in the global confectionery market, saying it remained confident about its growth prospects and was raising its dividend.

Hershey posted quarterly results just as Cadbury shareholders made their final decision to tender shares to Kraft Foods Inc , with the U.S. food group expected to seal its $18.6 billion (11.7 billion pound) takeover later in the day.

While Hershey tried to pull together a bid ahead of a deadline late last month, it struggled to finance an offer for a company more than twice its size and stood down once Kraft significantly sweetened its bid.

The combined Kraft and Cadbury will now hold the No. 1 spot in world confectionery, just ahead of Mars-Wrigley, and could pressure Hershey's hold on the U.S. market.

Hershey Chief Executive David West said the company's management and board were unanimous in their decision to back away from Britain's Cadbury. The two companies are partners in marketing each other's goods outside of their respective domestic markets, and Cadbury leadership had described Hershey as a better fit if they could make an attractive offer.

We continue to be encouraged by our position in the marketplace and confident in continuing future success, West told analysts in his first public comments since Cadbury agreed to the Kraft deal two weeks ago. We will continue to be disciplined, but open, to sources of growth via M&A.

The maker of Reese's peanut butter cups and Hershey kisses reported fourth-quarter earnings of 63 cents a share excluding one-time items. Analysts on average forecast 60 cents a share, according to Thomson Reuters I/B/E/S.

Net income rose to $126.8 million, or 5 cents a share, from $82.2 million, or 36 cents a share, a year earlier.

Revenue rose 2.2 percent to $1.41 billion, helped by price increases. But volume, a measure of products shipped, slipped as the price increases caused consumers to buy less candy in a weak economy.

Hershey's board of directors also raised the quarterly dividend by 7.6 percent to 32 cents a share.

Hershey shares rose 2.2 percent to $37.61. Kraft gained 1.8 percent and Cadbury was up 1.1 percent.

THREAT FOR THE LONG-TERM

Hershey stuck to a forecast that earnings before one-time items would rise 6 percent to 8 percent in 2010, even though it plans to spend up to 30 percent more on advertising and faces rising costs for ingredients like cocoa, milk and sugar.

That would put earnings at $2.30 to $2.34 a share, excluding items. Analysts on average forecast $2.28 a share, according to Thomson Reuters I/B/E/S.

Hershey had mulled a number of ways to bid for Cadbury, including a joint offer with Italy's Ferrero. The efforts, led by the charitable trust that controls Hershey, show the company understood the danger to its long-term growth prospects if it could not land Cadbury, analysts said.

I think for any company in the position that they are in, to try to grow organically overseas is really tough, Edward Jones analyst Jack Russo said. It can be done, but it will take an awfully long period of time.

West stressed on Tuesday that Hershey still has close to a 45 percent market share in the U.S. chocolate business and that market continues to grow.

Going forward, Hershey's acquisition strategy will focus on emerging markets, which are growing faster than the United States and western Europe, West said. The company has operations in Mexico and joint ventures in Brazil, India and China.

Hershey said on Tuesday that a lower-than-expected tax rate and a benefit related to accounting for inventory in the fourth quarter essentially offset the costs it ran up in considering a bid for Cadbury.

The company also said shipments of Valentine's Day candy shifted to the first quarter of 2010, while year-earlier results saw those shipments in the fourth quarter.

Hershey's advertising plans include new campaigns around core brands like Almond Joy and York peppermint patties, as well as supporting new products like Bliss white chocolates.

(Reporting by Brad Dorfman; Editing by Michele Gershberg, Derek Caney, Dave Zimmerman)

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