Embraer (ERJ -4.93%) has capitalized on a growing trend in the airline industry toward optimizing capacity across route systems, and its regional jet offerings have become a mainstay of the commercial airline fleet. Yet despite the huge success of the aerospace industry recently, Embraer remains vulnerable to cyclical downturns and how the company handles those air pockets will be critical to its long-term prospects.

Coming into its first-quarter financial report, Embraer investors anticipated declines in earnings and revenue due to less favorable conditions for the company. Results, however, were somewhat worse than most had expected, raising new questions about whether the aircraft manufacturer will remain a leader in the booming industry. Let's take a closer look at Embraer to see more about its latest results and its future.

E2 series Embraer jet.

Image source: Embraer.

Embraer loses altitude

Embraer's first-quarter results reflected the obstacles to growth that the company must overcome even in a relatively strong industry environment. Revenue plunged 22% to $1.03 billion, which was far worse than the $1.11 billion consensus forecast among those following the stock. Similarly, net income attributable to shareholders dropped by roughly 60% to $42.5 million, and after making changes for extraordinary items, adjusted earnings of $0.13 per share fell well short of the $0.21 per share that investors were looking to see.

Taking a closer look at its report, Embraer saw decreases across the board. Commercial aviation revenue was down more than 10%, but the executive jet unit took the biggest sales hit, losing 44% of its business compared to year-ago figures. The defense and security business suffered 18% declines in its top line.

Deliveries were sluggish for Embraer. Just 18 commercial aircraft deliveries represented three fewer planes than last year's first quarter, with the E-175 regional jet responsible for the entire drop. Business jet deliveries were downright ugly, falling by a third to just 15 as deliveries of large jets fell from 11 in the first quarter of 2016 to just four in the just-ended quarter. Even light-jet deliveries were down slightly, suggesting weakness and marking a disappointing sequential slowdown from the fourth quarter of 2016, in which Embraer delivered nearly three times as many aircraft.

Can Embraer regain altitude?

Looking forward, Embraer will need to do what it can to rebuild its business. Backlog figures were nevertheless weaker, falling another $400 million over the past three months to hit $19.2 billion. At the same time, prudent management of its debt will be increasingly important, especially given that total debt rose by more than half a billion dollars during the first quarter to reach $4.29 billion.

Still, Embraer is optimistic about its future. The aircraft specialist recently completed the first flight of its prototype for the E-195 E2 commercial jet model, putting the program ahead of schedule. Embraer still hopes that the new jet models will start going into service starting in the first half of 2018.

Even with the seasonal weakness, Embraer repeated its views on guidance for the full 2017 year. It still believes deliveries of commercial aircraft should be between 97 and 102 this year, with 105 to 125 executive jets composed of 70 to 80 light jets and 35 to 45 large jets. Embraer also gave no changes to its financial guidance, which last quarter called for sales of $5.7 billion to $6.1 billion in total. It sees between $3.25 billion and $3.4 billion of that coming from commercial aviation, with $1.6 billion to $1.75 billion from executive jets and roughly $800 million to $900 million from the defense and security business.

Embraer has seen its stock fall over the past couple of months, and investors won't be happy to see the sluggish results. However, with the winter quarter historically being weak, Embraer will have an opportunity to convince shareholders that its results were a one-time aberration if it can get its business moving faster this quarter and for the rest of 2017.