Nestle reported strong underlying 2008 sales growth of 8.3 percent and said it was cautiously upbeat for 2009, unlike some rivals, and would push cheaper products to cope with the downturn.

The world's biggest food group also said it did not need to act when a shareholder pact with L'Oreal expires in April. Speculation that Nestle might up its 29 percent stake in the world's biggest cosmetics firm have weighed on its shares.

Nestle reported that net profit rose 69 percent to 18 billion Swiss francs ($15.35 billion), compared with average analyst forecasts for 20 billion francs, helped by a 9.2 billion gain from the sale of part of U.S. eyecare firm Alcon.

The Vevey-based maker of Nescafe coffee, KitKat chocolate bars and Maggi soup said sales rose 2.2 percent to 109.9 billion francs, versus 110.5 billion francs in a Reuters poll, as a strong Swiss currency counterbalanced volume and price growth.

Analysts had expected closely-watched organic or underlying sales growth of 8.2 percent, after an 8.9 percent rise for the first nine months of the year.

For 2009, Nestle said it expected the economic downturn to continue to hit consumer demand but it wanted organic growth at least approaching 5 percent compared with a long-term goal for 5 percent to 6 percent underlying growth, and reiterated its goal of profit margin improvement at constant currencies.

Analysts expect organic sales growth of 4.5 percent in 2009.

Nestle shares were up 4.4 percent at 38.66 francs at 0815 GMT (3:15 a.m. EST), compared with a 2.5 percent stronger Dow Jones European food and beverage index .

Overall a strong set of figures and probably better than expected after weakness among peers, said Kepler Capital Markets analyst Jon Cox. The guidance is solid enough.

Big rivals like Procter & Gamble (P&G) and Kraft have recently cut their targets due to the consumer slowdown and retailer destocking, while Unilever said it could not give a specific 2009 outlook.

Underlying its confidence for 2009, Nestle proposed a dividend increase of 14.8 percent to 1.40 francs per share and said it would buy back around 4 billion francs of shares.

DOWNTRADING?

Chief Financial Officer Jim Singh said Nestle's popularly positioned product strategy of offering cheaper goods to lower income consumers was helping during the downturn and would be further pushed in Europe as well as developing countries.

We offer consumers the opportunity to trade up and trade down without trading out of Nestle products, he told an analyst call, adding the company hoped to sell more coffee and instant meals as people cut back on eating out.

But as consumers focus on essentials, Singh said 2009 would be a tough year for its bottled water business and its nutrition unit, which produces diet products and sports drinks and bars.

Nestle's bottled water business continued to struggle at the end of 2008, with volume sales down 3.9 percent to 9.6 billion francs due to weaker U.S. and western European markets.

Nestle shares have underperformed of late due to concern it might launch an expensive takeover of L'Oreal. A shareholder lock-up expires on April 29.

The announcement of the sale of its stake in Alcon last April fired speculation it might want to use the proceeds to buy more of L'Oreal, but CFO Singh said on Thursday Nestle was not in a hurry to do anything.

Nestle said it would honor its agreement with L'Oreal that it would not increase its stake until six months after the death of Liliane Bettencourt, the 86-year-old billionaire daughter of the group's founder who owns 30 percent.

But it said the board was considering Nestle's involvement in L'Oreal within the context of its nutrition, health and wellness strategy and said it would continue to take a long-term strategic view in shareholders' best interest.

The company remains cagey on L'Oreal although we do not anticipate a full takeover although a likely slower buyback rate could fuel speculation something might happen, Kepler's Cox said.

($1=1.173 Swiss Franc)

(Editing by David Cowell)

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