The boom in air travel worldwide has helped lift demand for aircraft, and the relatively few companies that produce the most popular commercial jets find themselves in the enviable position of competing for a fast-growing slate of bids from airline customers. Embraer (NYSE:ERJ) has capitalized on the market for smaller regional jets that help many airlines expand hub-and-spoke model routing systems to smaller cities that lack the capacity to support larger aircraft economically.

Coming into Thursday's fourth-quarter financial report, Embraer investors were prepared for weaker sales and earnings, but they still wanted the company to post strong results in light of interest from Boeing (NYSE:BA) for a collaboration involving the U.S. aerospace giant taking a sizable equity stake in its Brazilian counterpart. Embraer's financials had some ugly spots, but shareholders are still hopeful that Embraer will be able to take 2018 and make it into a successful transition year.

Let's look more closely at Embraer and what it told investors about its recent results.

E2 series commercial jet in flight over a scattered cloud layer near sunset or sunrise.

Image source: Embraer.

Embraer hits some turbulence

Embraer's fourth-quarter results didn't live up to the standards the company had reached in previous periods. Revenue fell almost 15% to $1.73 billion, accelerating from its pace of decline in the third quarter and coming in a bit weaker than most of those following the stock had anticipated. Adjusted net income of $58.3 million was down more than 70% from year-ago levels, and the resulting adjusted earnings of $0.32 per American depository share was well below the consensus forecast for $0.75.

Embraer saw a flip in the relative performance of its segments during the quarter. Weakness in the commercial aircraft segment weighed considerably on sales, with the division's top line falling 22%. The company delivered just 23 commercial aircraft during the period, down from 32 in the prior-year's quarter, as throughput for the older E175 model plunged. Defense was also weaker, with a 15% drop in revenue. By contrast, the executive jet segment held up well, with revenue coming in just 3% lower as jet deliveries rose from 43 last year to 50. Light jet demand was especially strong.

Yet Embraer's bottom line suffered from several impairment charges. The aircraft manufacturer took a $54.2 million charge in its executive jet segment, and the defense area saw its own hit of $8.7 million. Combined with some favorable one-time benefits a year ago, a considerable portion of the company's profit decline stemmed from irregular factors. Nevertheless, some unfavorable revisions on costs in the defense and security area, especially in relation to the KC-390 military transport aircraft contract, also weighed on earnings.

What's next for Embraer?

Embraer once again repeated that it sees 2018 as a time of transition for the company, with the key event being the start-up of production for its E190-E2 next-generation aircraft. In addition, KC-390 deliveries are scheduled to begin in the second half of 2018. Upgrades to the E195-E2 and E175-E2 models will take a bit longer, with entry into service expected in 2019 and 2021, respectively. In terms of delivery counts, Embraer sees delivery of 85 to 95 commercial jets and 105 to 120 business jets during the year, including five to 10 deliveries of E190-E2 models.

Financially, Embraer's guidance remained largely unchanged, with previous ranges narrowed on both ends. The aircraft manufacturer now sees revenue of $5.4 billion to $5.9 billion, with pre-tax income of between $270 million and $355 million for the full 2018 year.

Investors are still wondering what will come of discussions with Boeing regarding a possible business combination. Embraer didn't add much news in its earnings release, saying simply that negotiations are ongoing and reminding investors that the Brazilian government would have to approve any deal before it went through.

Embraer shareholders weren't entirely happy with the decline in revenue and earnings, and the stock fell more than 2% in pre-market trading following the announcement. Even so, with airlines stronger than ever and demand for aircraft still on the rise, Embraer is in a solid position to keep benefiting from new orders and the launch of its E2 series.

Dan Caplinger owns shares of Boeing. The Motley Fool recommends Embraer-Empresa Brasileira. The Motley Fool has a disclosure policy.