Nov. 4 (Bloomberg) -- Time Warner Inc., owner of Fortune magazine and the HBO channel, raised its 2009 forecast and reported third-quarter profit that fell less than analysts estimated on cost cuts and rising cable-television revenue.

Earnings, excluding some items, dropped to 61 cents a share from 65 cents a year ago, beating the 54-cent average of 19 analysts’ estimates compiled by Bloomberg. Adjusted earnings may rise to at least $2.05 a share this year from $1.98 last year, the New York-based company said today in a statement.

Chief Executive Officer Jeffrey Bewkes is cutting jobs at the publishing division and will spin off the AOL Internet unit next month to drive profit. Increasing affiliate fees and lower marketing and newsgathering expenses at the cable unit, which includes CNN and TBS, mitigated slumping advertising sales at AOL and the magazines, and declining DVD sales in the quarter.

“The networks outperform almost every quarter, and they did it again this quarter,” Chris Marangi, an analyst with Gabelli & Co. in Rye, New York, said in an interview.

Time Warner fell 6 cents to $30.10 at 4 p.m. in New York Stock Exchange composite trading. The shares have increased 35 percent this year, compared with a 16 percent gain for the Standard & Poor’s 500 Index.

Analysts on average predict 2009 earnings, excluding some items, of $2.04 a share, implying growth of 3 percent.

Time Inc. Cuts

In July, Time Warner forecast earnings would be little changed. The company said today it raised its forecast because of better-than-expected results at the content units, which are the film, publishing and cable-network divisions. The outlook includes as much as $100 million in restructuring costs, mainly severance pay, at the publishing unit in the fourth quarter.

Time Inc. may cut 400 to 500 jobs, according to a person familiar with the plans. The number hasn’t been decided and will depend on how many people accept voluntary buyouts, said the person, who declined to be identified because the plans aren’t public. It is the second round of reductions in a year after 600 workers lost their jobs in November 2008.

Sales slipped 5.9 percent to $7.14 billion in the third quarter, better than the $7.04 billion average of 14 analysts’ estimates compiled by Bloomberg.

Time Warner has bought back 18 million shares for $530 million since July 29. Investors have pushed for cash returns since the company received $9.25 billion in March from the spinoff of Time Warner Cable Inc., a cable-system business. Time Warner had $7.13 billion in cash and equivalents as of Sept. 30.

Cash Use

The company will use at least $2 billion of its cash to pay debt that matures in the quarter, Chief Financial Officer John Martin said on the call.

At the cable networks, the only unit with rising revenue in the quarter, ad sales slipped 1 percent and subscriber fees gained 9 percent. Morris estimated a 3 percent decline in advertising and an 8 percent rise in subscription revenue.

Ratings were “soft” in September and October at entertainment cable channels including TBS and TNT, Bewkes said. The ratings weakness won’t last, he said.

“Business is booking a little closer to air than usual,” Bewkes said, referring to the ad market.

Ad sales at the publishing unit, owner of People and Time, fell 22 percent, beating the 25 percent drop predicted by Michael Morris, a UBS AG analyst in New York who recommends buying the shares. The rate of decline will moderate this quarter compared with the first nine months of the year, Time Warner said in a regulatory filing today.

AOL Restructuring

AOL’s ad revenue fell 18 percent after dropping 21 percent the second quarter. The decline was smaller than the 21 percent drop predicted by Morris.

After the separation, AOL plans “significant” restructuring activities, Time Warner said in the filing. Costs to reorganize the unit, mainly through job cuts and facility closures, were $83 million in the first nine months of the year and Time Warner expects $20 million more this quarter.

At the Warner Bros. film studio, adjusted operating income before depreciation and amortization rose 1 percent to $385 million, as cuts in jobs and ad expenses countered lower home- video and box-office revenue. Jeffrey Logsdon, an analyst with BMO Capital Markets who rates Time Warner “outperform,” expected a 15 percent drop.

Warner Bros., which released “Harry Potter and the Half- Blood Prince” and “The Hangover,” is the top-grossing studio this year in the U.S., pulling in $1.7 billion in box-office sales through Nov. 1, according to Box Office Mojo.

Time Warner’s profit from continuing operations dropped 13 percent to $662 million, or 55 cents a share, from $761 million, or 63 cents, a year earlier. That excludes year-ago results for Time Warner Cable, spun off in March. Net income, including the cable-systems unit, fell to $661 million from $1.07 billion.

Viacom Inc., the owner of MTV Networks and the Paramount Pictures film studio, yesterday reported third-quarter profit that rose more than analysts estimated on higher box-office revenue with “Transformers: Revenge of the Fallen” and “G.I. Joe: The Rise of Cobra.”

To contact the reporter on this story: Sarah Rabil in New York at srabil@bloomberg.net

Last Updated: November 4, 2009 16:05 EST