Starwood Hotels & Resorts Worldwide Inc. reported a better-than-expected 16.4 percent drop in second-quarter profit Thursday, although the stock fell after Starwood cut its full-year outlook, citing a weakening U.S. market.

Starwood shares fell $4.56, or 11.5 percent, to $35.26 Thursday. The stock has fallen from a 52-week high of $74.05 last July to touch a low of $30.26 last week.

"The slowdown we see continues to be consumer-led," chief financial officer Vasant Prabhu said during a conference call with analysts.

He said the company's weakest markets are those where leisure business plays the biggest role in revenue, such as Phoenix and Hawaii.

Overall, bookings in the U.S. are declining, Prabhu said, though he noted that cancellations are not on the rise.

Net income for the three months ended June 30 fell to $105 million, or 56 cents per share, from $145 million, or 67 cents per share, in the same period a year earlier. There were no one-time items in the quarter this year; last year's second-quarter net income excluding special items was 82 cents per share.

Analysts surveyed by Thomson Financial, on average, forecast earnings of 52 cents per share.

Starwood attributed the earnings shortfall to a 28 percent decline in timeshare revenue and a one-time gain related to a joint venture recorded in 2007. But Lehman Brothers analyst Felicia Hendrix noted that timeshare performance, which still was better than expected, was boosted by some gains having been recognized earlier than expected.

The company lowered its timeshare guidance for the full year due to lower sales in Hawaii, among other factors.

International demand remained solid for the company, but it dropped significantly and abruptly in the United States in May, said Starwood CEO Frits van Paasschen.

Worldwide revpar for Starwood-branded hotels open at least one year gained 6.8 percent, while revpar at North American hotels owned at least a year by Starwood grew 5.2 percent. Revenue per available room, also known as revpar, is a key gauge of a lodging company's performance.

The company said it is still bullish on its long-term growth, planning more than 120,000 rooms including almost 60 percent outside the United States.

"We're better positioned to manage through an economic downturn having shifted away from owning hotels, particularly in the U.S., to managing and franchising an increasingly global footprint," Van Paasschen told analysts.

Starwood reduced its full-year earnings outlook, however, as it lowered revpar expectations for both the company's North American and international properties, prompting a sell-off of the stock.

"The steeper-than-expected reduction in back-half guidance should temper the enthusiasm that we have seen over the last week in the wake of declining oil prices as investors refocus on the eroding fundamentals in lodging," said Thomas Weisel Partners analyst Jake Fuller.

Oppenheimer & Co. analyst David Katz was less pessimistic.

"Although Starwood lowered guidance (after raising it last quarter)," Katz said, "the revpar growth outlook implies that Starwood should outperform its competitors."

The company now predicts 2008 earnings to range from $2.17 to $2.32 per share. Analysts forecast earnings of $2.44 per share.

Starwood's outlook assumes 6 percent to 8 percent worldwide revpar growth at company-operated hotels open for at least one year and 2 percent to 3 percent growth at branded North American hotels open for at least one year.

In April, the company lifted its full-year earnings guidance to a range of $2.40 to $2.58 per share. That previous outlook assumed higher worldwide revpar growth of 8 percent to 10 percent and growth between 4 percent and 6 percent in North America.

For the third quarter, Starwood expects earnings per share between 52 cents and 57 cents, compared with analysts' consensus estimate of 66 cents per share. The company's outlook assumes worldwide revpar growth of 6 percent to 8 percent and North American revpar between 1 percent lower and 1 percent higher than the same period a year earlier.