Time Warner Inc posted a higher-than-expected quarterly profit and raised its full-year earnings forecast, in a sign that advertising sales at cable networks such as TNT are recovering and that cost-cutting at the Warner Bros film studio is paying off.

The surprising results -- earnings per share beat analyst forecasts by about 15 percent -- come during a major repositioning at Time Warner, which has spun off Time Warner Cable Inc and will spin off Internet operation AOL in December.

Time Warner shares rose slightly after the report, which showed AOL and the Time Inc magazine division as the main drags during the quarter. Overall profit, while better-than-expected, fell 38 percent.

Third-quarter net income fell to $661 million, or 55 cents a share, from $1.07 billion, or 89 cents a share, a year before. Adjusted profit was 61 cents a share, compared with the 53 cents analysts had expected, according to Thomson Reuters

I/B/E/S.

Revenue fell 6 percent to $7.1 billion, roughly matching Wall Street forecasts.

Chief Executive Officer Jeff Bewkes wants to concentrate on one big business: creating content. He has also taken a hard line on costs, a strategy that is underpinning results and cheering investors, who have driven the stock up by about a third in the last six months.

Bewkes said 2009 earnings from the combination of Turner Broadcasting, Time Inc, and Warner Bros -- its content businesses -- would surpass those of last year by about 23 percent. He also raised the company's full-year outlook.

Analysts credited Time Warner's efforts to cut back on expenses, particularly at Warner Bros. Collins Stewart analyst Thomas Eagan called the film division's results standout.

Another analyst, Caris & Co's David Miller, said: Cost containment has been thematic to the Jeff Bewkes regime. He demonstrated this hawkish ability to keep an eye on costs once again.

In a pattern made clear in this week's rush of results, media companies with cable properties are finding their footing more quickly as the economy starts to improve.

At both Discovery Communications Inc and Viacom Inc, ad sales and distribution revenue for cable networks showed signs of life.

At Time Warner's cable networks, including Turner and HBO, revenue rose to $2.87 billion from $2.73 billion. Subscription revenue rose 9 percent. Advertising sales fell, but only 1 percent, a sunny sign for the battered media industry.

As for the full-year forecast, Time Warner said adjusted earnings per share should rise to at least $2.05, compared with analysts' forecast of $2.02. Previously, it said earnings would be similar to last year's $1.98 a share.

The current forecast includes a $100 million restructuring charge that the company will take in the fourth quarter to help revamp its publishing division.

Shares of Time Warner rose 26 cents or 0.9 percent to $30.42 on the New York Stock Exchange.

(Reporting by Paul Thomasch; Editing by Gerald E. McCormick and Derek Caney)

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