MEXICO CITY (Reuters) - Mexican bottler Arca Continental said on Thursday its third-quarter net profit rose 7% as it sold more water and soft drinks than expected in its home market and widened its U.S. profit margin.

The net profit of 4.54 billion Mexican pesos ($260 million) was slightly below the 4.62 billion pesos analysts polled by LSEG had estimated, but Arca's higher core margins exceeded J.P. Morgan's expectations.

"The highlight of this quarter is once again the strong performance of the U.S. operations," J.P. Morgan analysts said in a note. Mexican volumes were "the main surprise" and traders should react positively to a 2.22-peso extraordinary dividend per share, they added.

In a call with analysts, CEO Arturo Gutierrez said the company would keep increasing its prices "in line with or above" inflation across its divisions, though its U.S. price hikes would be "more conservative than in previous years."

Net sales rose 2% to 56.91 billion pesos, surpassing LSEG's 56.22 billion estimate. The increase would have been 14% if not for the Mexican peso's 5% gain against the dollar from July to September. The stronger peso diluted overseas earnings of Mexican companies, bringing down South American sales around 5%.

Beverages and water drove sales volumes up more than 7%, helping core earnings rise nearly 8% to 11.51 billion pesos.

Gutierrez added that Arca, Latin America's No. 2 Coca-Cola bottler after Coca-Cola FEMSA, had strengthened collaboration with the beverage giant, "through better alignment and a better economic model."

Following the positive quarterly results, the Mexican bottler should return to 2021 EBITDA margin levels next year, finance chief Emilio Marcos Charur added on the call.

Arca shares gained momentum after the call, extending its gains to around 4.5% as of 1715 GMT.

($1 = 17.4279 Mexican pesos at end-September)

(Reporting by Noe Torres, Sarah Morland and Aida Pelaez-Fernandez; Writing by Valentine Hilaire; Editing by Varun H K, Richard Chang and Tomasz Janowski)