NEW YORK (CNN/Money) - Time Warner Inc. saw record box office from its Harry Potter movie and strong ad sales lift earnings excluding special items above year-earlier results, as the media conglomerate raised its 2004 earnings guidance.

Strong box office for the latest Harry Potter movie helped lift Time Warner results.

The New York-based owners of the Warner Bros. studios, America Online, and Time Inc. -- as well as CNN/Money -- earned $882 million, or 19 cents a share, excluding discontinued operations in the quarter.

That's up from the $536 million, or 11 cents a share, it earned excluding special items a year earlier, and it topped the 15-cent-a-share forecast of analysts surveyed by earnings tracker First Call.

However, including discontinued operations and special items such as the gain from the sale of Comedy Central cable network and a settlement with Microsoft that it posted in the year-earlier period, the company posted a quarterly net profit of $777 million, or 17 cents a share, in the most recent quarter. That was down from $1.06 billion, or 23 cents a share, in the year-earlier quarter.

The company does not give earnings-per-share guidance, but it said it now expects low double-digit to low teen percentage growth in full-year operating income before depreciation and amortization, excluding impairments of goodwill and intangible assets and gains and losses from asset disposals. Three months ago it said it was only looking for low double-digit growth in that measure.

The company also said it expects its America Online unit to post a low double-digit to mid-teen percentage gain in operating income before depreciation and amortization. It previously was only looking for low double-digit growth in that measure.

Despite the new guidance and the better than expected earnings, shares of Time Warner (TWX: down $0.40 to $16.51, Research, Estimates) were slightly lower in morning trading in New York, after trading higher in European trading before the U.S. market open.

"AOL looks to be slowing the bloodletting and this was a major factor in the aforementioned guidance upping," said Greg Gorbatenko, analyst with Marquis Investment Research, in a note to clients, who reiterated a "Buy" recommendation on the stock. "All in all, the quarter looked decent. Additionally, the valuation of the company is very respectable, as it is still reeling from being oversold. We believe multiple expansion is likely due to AOL turnaround, cable opportunity, and strong film and network assets."

The company's net debt, which reflects debt less cash and cash equivalents on hand, fell to $18.7 billion from $22.7 at the end of the first quarter. The debt levels are now within targets set by company executives in 2002, when they identified debt reduction as the company's key financial goal.

The company said it continues to cooperate with government investigations into accounting practices at its AOL unit. The company had previously disclosed that government investigators have told the company that it believes some transactions were improperly recognized in results.

While the company has not yet changed its position that the accounting was proper, it did say Wednesday that it has started an internal investigation into one of the key transactions under federal scrutiny, the purchase of a stake that Bertelsmann once held in AOL Europe, in January 2002.

Time Warner repeated earlier statements that the SEC probe into its accounting has put a hold on plans by the company to sell stock in its cable unit.

Overall revenue was up 9.7 percent to $10.9 billion in the second quarter. First Call's forecast was for revenue of $10.4 billion, with a range of estimates from $10.2 billion to $10.7 billion. The company saw increases in operating earnings and revenue across all its different units.

NETWORKS: The unit that includes Turner Broadcasting, HBO and WB earned $602 million, almost double the $305 million it earned a year earlier, although it was up only 25 percent excluding a year-earlier charge for the sale of the company's basketball and hockey teams.

The company posted a 14 percent gain in subscription revenue, a 6 percent gain in ad revenue and a 15 percent gain in content revenue, such as the sale of home videos of its HBO programming.

PUBLISHING: The unit that includes the company's magazines including Time, People and Sports Illustrated posted a 75 percent gain to operating income of $288 million, although it was up only 10 percent excluding a year-earlier charge related to the value of its book publishing division. The unit saw overall revenue up 4 percent, with a 10 percent increase in ad revenue and 14 percent gain in subscription revenue.

AMERICA ONLINE: The world's largest Internet service provider posted operating income of $276 million, up 31 percent from a year earlier. The unit saw 2 percent growth in overall revenue, with advertising revenues up 23 percent due primarily to paid search gains.

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The company said it was the first time since 2001 that is has seen an increase in advertising revenue compared to a year earlier, and it now believes it will end the year with higher ad revenue than it posted in 2003, even without its planned acquisition of online advertising firm Advertising.com in the second half of 2004.

Subscription revenue at AOL was essentially flat, as a decline in U.S. subscription revenue was offset by favorable foreign currency exchange.

The number of subscribers fell by 668,000 to 23.4 million U.S. subscribers, although that decline was due to a 753,000 decrease in trial and retention customers. The number of billed subscribers posted a gain of 85,000, but within that increase there were subscriber losses as well, as a gain of 630,000 customers using other company's high-speed service to connect to the Internet was greater than the loss of more than 500,000 customers using traditional dial-up service to connect to AOL.

"The strength of the AOL cash flow and billed subscribers were better than investors were expecting and an increase in full-year guidance is clearly a good sign," Richard Greenfield, an analyst at Fulcrum Global Partners, told Reuters.

FILMED ENTERTAINMENT: The company's two film and television studios -- Warner Bros. and New Line Cinema -- earned $339 million, up 11 percent, although that would have been a 29 percent increase without a gain from an asset sale in the year-earlier period. The unit posted a 12 percent gain in revenue, the best percentage gain of any unit, to $3.1 billion, led by $703 million in worldwide box office from "Harry Potter and the Prisoner of Azkaban" and $484 million from "Troy."

Company executives would not comment directly on a report that Time Warner is now the leading bidder for independent film studio Metro-Goldwyn-Mayer (MGM: Research, Estimates), other than to say that they would be looking at possible acquisition opportunities in the "content" area.

CABLE: The nation's No. 2 cable operator posted a 10 percent gain in operating income to $443 million, and saw revenue also rise 10 percent. Subscription revenue grew 10 percent, driven by a 25 percent increase in high-speed data revenue, enhanced digital video services and higher basic cable rates. Advertising revenue climbed 7 percent.

The company said the number of basic cable subscribers declined by less than a percentage point to 10.9 million, but that marked the first decline in that measure.

Time Warner executives spent a lot of time in their conversation with investors defending plans to look at acquisitions within the cable industry, rather than using available cash for stock buybacks or dividends to lift stock price, or investments in other businesses.

"We like the business," said Chairman and CEO Richard Parsons. "This is a superior platform for delivery of voice and data going forward. It protects and defends our content business. It doesn't mean we're going to go out and do something imprudent."  

-- Reuters contributed to this report