Nov. 29 (Bloomberg) -- H.J. Heinz Co., the world's biggest ketchup maker, reported second-quarter profit that exceeded analysts' estimates after it stepped up advertising and boosted prices to counter rising commodity costs.

Heinz also increased its full-year earnings forecast. Net income rose 19 percent to $227 million, or 71 cents a share, helped by a lower tax rate, the Pittsburgh-based company said today in a statement.

Marketing expenses rose 23 percent as Chief Executive Officer William Johnson introduced new products, helping boost baby-food sales in Italy and Smart Ones meals in the U.S. The company also set prices 2.6 percent higher to offset higher costs for dairy, vegetable oil and sweeteners. A weaker dollar helped sales advance in Europe and India.

``It was a very strong quarter,'' said Matthew Kaufler, a portfolio manager at Clover Capital Management in Rochester, New York. ``If you look at the top-line momentum, and you look at the kind of pricing they have been able to realize to help offset the cost increases, it's pretty impressive.'' He helps oversee $2.6 billion, including Heinz shares.

Sales for the three months that ended Oct. 31 rose 13 percent to $2.52 billion, Heinz said. Currency gains contributed about 5 percentage points of the increase.

Profit for the year ending in April will be as much as $2.62 a share, up from an earlier estimate of at most $2.60, Heinz said. Analysts estimated $2.61 on average.

Share Performance

Heinz gained 35 cents to $47.54 at 4:01 p.m. in composite trading on the New York Stock Exchange. The stock added 5.6 percent this year after climbing 33 percent last year.

Analysts surveyed by Bloomberg estimated average profit of 67 cents on revenue of $2.4 billion. Profit a year earlier was $191.6 million, or 57 cents a share.

The ketchup maker's tax rate fell to 29.8 percent in the quarter from 34.8 percent a year earlier, and was lower than the 33 percent estimated by Eric Katzman, an analyst at Deutsche Bank AG who recommends investors buy the shares.

The tax rate may climb to as much as 36 percent in the third quarter, Chief Financial Officer Art Winkleblack said on a conference call with analysts and investors.

Heinz introduced cooking sauces in Australia, Smart Ones Anytime Selections frozen meals in the U.S. and dozens of other new products in the past 12 months. The company plans to add 200 items in the year through April.

Sales of Heinz's top 15 brands, which represent about 70 percent of sales, rose 14 percent. Sales in Europe climbed 18 percent to $872.4 million as consumers bought ketchup, soup, beans and Italian baby food.

North America

North American revenue added 13 percent to $756.2 million, helped by Smart Ones, Classico sauces and Boston Market meals.

Sales at Heinz's U.S. foodservice unit, which serves restaurants, climbed less than 1 percent to $406.4 million. Operating dropped 14 percent at the unit, hurt by the higher commodity costs and as fewer people ate out because of gas prices and a weaker economy.

``We are not looking for a substantial turnaround until we see a change in the economy,'' Johnson said on the call. ``We have factored that in. We are not surprised by this. We feel OK about where we are headed.''

Heinz doesn't see any kind of decline in commodity costs increases and sees inflation of more than 7 percent this year, Winkleblack said.

Nelson Peltz

Billionaire investor Nelson Peltz, who won a seat on Heinz's board last year, has pushed the company to spend more on marketing to promote healthier products in the U.S. and U.K. His Trian Fund Management LP owns 6 percent of the company.

``His presence certainly matters to the extent sharper questions are being asked in the boardroom from somebody who has very relevant operating and financial experience,'' Kaufler said.

The ketchup maker has sold slower-growing units in Europe, where it was losing market share to stores' house brands. Heinz closed 16 plants last year and will close five this year to trim spending.

To contact the reporter on this story: Josh Fineman in New York at jfineman@bloomberg.net.

Last Updated: November 29, 2007 16:14 EST