Oct. 23 (Bloomberg) -- Nestle SA, the world's largest food company, said nine-month sales increased 3.4 percent and raised its forecast for annual revenue growth, helped by higher prices to cover costs for sugar, coffee and cocoa.

Nestle jumped as much as 7.1 percent in Zurich trading. Sales rose to 81.36 billion Swiss francs ($70 billion) from 78.71 billion francs a year earlier, the Vevey, Switzerland- based company said today. Nestle expects annual revenue growth before acquisitions, divestments and currency fluctuations to be about 8 percent, up from at least 7.4 percent.

The maker of Friskies pet food and Carnation evaporated milk changes at least 20 percent of its 130,000 products each year so it can charge higher prices and keep sales growing. Nestle has increased prices in Europe by between 3 percent and 10 percent this year amid competition from less expensive, supermarket-brand alternatives.

The forecast is ``the icing on the cake,'' said Jon Cox, an analyst at Landsbanki Kepler. ``Of course growth is going to be slower next year, but I can think of few other places to hide out in terms of an investment during a global recession.''

Nine-month sales were just above the 81.28 billion-franc median estimate of 10 analysts surveyed. So-called organic sales growth, excluding acquisitions, divestments and currencies, advanced 8.9 percent in the nine months, beating the 8.3 percent estimate. Volume growth matched the 3.4 percent estimate.

Shares Rise

Nestle aims to meet analysts' consensus for a 30 basis- point improvement in full-year operating margin, Roddy Child- Villiers, head of investor relations, said on a conference call.

The shares rose 2.22 francs, or 5.2 percent, to 45.18 francs at 9:33 a.m. in Zurich. The shares have fallen 13 percent in the past year, less than the approximate 20 percent drop by the 14-member Bloomberg Europe Food Index.

Chief Financial Officer Jim Singh repeated three months ago that higher commodity prices would add 2.2 billion francs to costs this year.

``To raise their guidance in this environment is truly amazing,'' said Beatrice Kunz, a portfolio manager at Clariden Leu in Zurich who helps oversee $147 billion in assets, including Nestle shares.

To be sure, agricultural commodities have dropped from record highs recently. Among Nestle's most important raw materials, sugar futures have dropped 8.7 percent in the past three months, and robusta coffee is down 30 percent. Cocoa has dropped 12 percent.

Sales by Division

Chief Executive Officer Paul Bulcke said in a Bloomberg Television interview that there may be a ``smoothening out'' for price increases. He added that sales ``softened a little bit'' after an ``extraordinary'' start to the year, when the business expanded its Jenny Craig weight-loss business.

Nestle's Nutrition business posted organic sales growth of 9.6 percent in the first nine months of the year. Full-year sales growth for the unit on that basis will be closer to 9 percent than 10 percent, Child-Villiers said on an analyst call.

Organic sales at the Nestle Waters unit decreased 1 percent, with volumes dropping 3.2 percent due to slowing economies in Western Europe and North America and ``perceived environmental issues'' around bottled water, Nestle said.

The strength of the Swiss franc against currencies such as the dollar cut 8 percentage points from sales growth. The dollar was on average 13 percent lower against the franc in the first nine months of the year, compared with the year-earlier period.

Nestle said it has used the $10.4 billion proceeds from selling a stake in eyecare company Alcon Inc. to reduce the company's exposure to the short-term commercial paper market. The company said its net debt will be lower at the end of 2008 than the level at the end of last year.

To contact the reporter on this story: Thomas Mulier in Geneva at tmulier@bloomberg.net.

Last Updated: October 23, 2008 03:54 EDT