Aircraft manufacturers have been some of the biggest beneficiaries of the resurgence of airline stocks, and for Brazil's Embraer (NYSE:ERJ), a focus on smaller aircraft that airlines can use to fill in route maps has paid off with strong results. Yet even with favorable overall conditions for the industry, Embraer has seen ups and downs from quarter to quarter, sometimes having to endure setbacks along the way.

Coming into Friday's first-quarter financial report, Embraer investors thought that the company would be able to post a profit despite seeing some headwinds to its core business. Instead, Embraer suffered a loss, and its delivery figure indicated some potential new challenges for the aircraft manufacturer. Embraer will need to do everything it can to recover as it prepares for the rollout of its new E2 series aircraft over the next several years.

Regional jet in flight heading into a rising or setting sun, with the Embraer E2 markings clearly visible.

Image source: Embraer.

Embraer's financials stay choppy

Embraer's first-quarter results continued a troubling trend that we've seen recently from the company. Revenue was down again on a year-over-year basis, falling 5% to $992 million, which was worse than the roughly 2% drop that most investors were expecting to see. Embraer suffered an adjusted net loss of $24.6 million, equating to $0.13 per share. The consensus forecast among those following the stock had called for a profit of $0.04 per share.

One large source of disappointment came on the delivery front. During the quarter, Embraer had just 25 aircraft deliveries, down from 33 in the same period a year ago. Declines showed up across the company's business units, with commercial aircraft deliveries dropping from 18 to 14 and executive aircraft deliveries going from 15 to 11. That sent net revenue for the commercial aviation segment down more than 20% and cost the executive jet segment more than a quarter of its sales compared to the first quarter of 2017.

Interestingly, Embraer's other segments largely picked up the slack. Defense and security revenue soared more than 60%, and services and support sales posted a modest 4% rise. In defense, deliveries of two A-29 Super Tucano aircraft to undisclosed customers, a Phenom 100 to a U.K. training services provider, and an F-5BR to the Brazilian Air Force helped bolster results for the period.

Embraer pointed to a number of achievements during the period that it hopes will help it in the future. Flight tests from the E2 development program confirmed that performance will be even better than its original specifications had suggested, making it more efficient than other single-aisle aircraft. In February, the company got a type certificate for the E190-E2 from Brazil's main civil aviation agency, as well as the U.S. Federal Aviation Administration and the European Aviation Safety Agency, becoming the first high-level aircraft program to do so simultaneously with all three bodies. On the business jet front, deliveries of the Phenom 300E and the Legacy 450 show the potential path forward for the executive segment.

Can Embraer bounce back?

There's no doubt that Embraer has the capacity to continue to deliver strong performance for years to come. Firm order backlog for the aircraft manufacturer rose to $19.5 billion, pointing to several years' worth of future business that the company has in store. Those backlogs include 280 aircraft in the E2 series, including 100 E175-E2 planes, 74 E190-E2s, and 106 E195-E2s.

Despite the tough start to the year, Embraer reaffirmed all of its previous guidance. That leaves it still expecting revenue for the full 2018 year to be between $5.4 billion and $5.9 billion, and pre-tax income to be in a range of $270 million to $355 million. Embraer expects to deliver 85 to 95 commercial jets and 105 to 120 business jets during the year, including five to 10 deliveries of E190-E2 models.

Ongoing discussions with aircraft manufacturing giant Boeing (NYSE:BA) didn't come up with any firm commitments, but a few details came out in the press release. One possible structure involves creating a joint entity for commercial aviation, with the idea that Embraer would retain full control of the defense and security segment. It's unclear whether Boeing would want exposure to the executive segment, but keeping defense out of the picture would make it easier for Brazilian officials to accept a combination involving Embraer.

Embraer shareholders weren't very pleased with the unexpected loss, and the stock was down more than 2% in pre-market trading following the announcement before rebounding to a smaller loss early in the trading day. For Embraer to succeed, it needs to bounce back quickly from a seasonally slow period and show that its setback was a temporary phenomenon.