National Oilwell Varco (NYSE:NOV) is on deck to report its second-quarter results before markets open on Tuesday morning. The oil field equipment maker is expected to report a significant year-over-year drop in both revenue and earnings as a result of the very weak oil market. That said, investors shouldn't dwell on this weakness and instead keep their eyes on three other more important things when the company reports.

First, a review
Last quarter, National Oilwell Varco was actually able to overcome an awful oil market to beat analysts' expectations. The company reported revenue of $4.8 billion, which was only down 1% year over year and just narrowly missed the consensus estimate of analysts. Driving this relative strength was the company's rig systems segment, which delivered a 12% year-over-year jump in revenue as we can see on the following chart.

 

Revenue

 

Operating Profit

Operating Profit %

Segment

1Q15

1Q14

1Q15

1Q14

1Q15

1Q14

Rig Systems

 $2,523

 $2,256

 $488

 $451

19.3%

20%

Rig Aftermarket

 $719

 $750

 $199

 $191

27.7%

25.5%

Wellbore Technologies

 $1,171

 $1,278

 $124

 $224

10.6%

17.5%

Completion & Production Systems

 $948

 $1,002

 $108

 $143

11.4%

14.3%

Source: National Oilwell Varco's press release ($ in millions).

As a result of the overall strength of its rig systems segment, and stronger profitability in its rig aftermarket segment, National Oilwell Varco was able to produce $466 million in adjusted net income, or $1.14 per share. That was only off by 12% year over year and beat the consensus estimate by $0.04 per share.

1. Results vs. expectations
Ideally, we'd like to see a repeat of last quarter with National Oilwell Varco delivering better than expected results. To do that the company will need to report more than $3.9 billion in revenue and $0.67 per share in earnings, which is the current consensus estimate of analysts. That said, those estimates are a significant drop from the second quarter of last year when the company reported $5.3 billion in revenue and earned $1.44 per share in profits.

There is reason to be hopeful that National Oilwell Varco can do just that as the company has a robust contract backlog, which will provide some revenue stability. As of the end of last quarter the company's backlog stood at $11.9 billion, with $10.4 billion in its Rig Systems segment with another $1.5 billion in its Completion and Production segment. On top of that the company has implemented a number of cost-cutting initiatives to drive better efficiency as well as to mute the impact of declining revenue. Depending on how successful the company was with these initiatives, it could push the company's profitability past analysts' estimates.

2. The backlog
Speaking of the backlog, investors will want to keep an eye on how much of it the company burned through during the quarter. The company's rig systems' backlog in particular has been hit hard the past few quarters as it was down 17% sequentially last quarter, and 31% over the prior year. This was after the company turned $2.25 billion of the backlog into revenue last quarter while another $99 million removed due to the impact of foreign exchange movements. Against this the company only added $236 million in new orders. Meanwhile, the company's completion and production solutions' backlog declined by 18% last quarter after it turned $563 million of it into revenue, while $81 million was removed due to foreign exchange movements while it only booked $327 million in new orders during the quarter.

Investors will want to keep an eye on changes to the backlog during the second quarter. It's very likely the overall backlog will decline again this quarter as the company will likely turn more of the backlog into sales than it will generate in new orders. It's really those new orders that investors will want to keep an eye on because if those orders continue to dry up it would suggest that future revenue will be weak.

3. The outlook
The last thing investors will want to keep an eye on is any changes to the company's outlook. Last quarter CEO Clay Williams said the company "doesn't know the duration of the downturn" as the market was still falling. But several oil field service companies have said the oil market is in the process of hitting bottom with the potential for an uptick in oil and gas activity possible in 2016. Clearly, we'd like to see National Oilwell Varco confirm that it's seeing a bottom in spending from its customers with an expectation for a rebound next year.

Investor takeaway
Given that the oil market continued to weaken in the second quarter, there's no expectation National Oilwell Varco will deliver robust results. That said, the company has the potential to beat analysts' muted expectations if it's successful on its cost-cutting initiatives. Further, if the company can deliver a better than expected outlook, either via stronger new-order bookings or positive comments from its CEO declaring the end of the downturn, that could fuel a rally in the company's stock price even if earnings do come in weaker than expected.

Matt DiLallo has the following options: short August 2015 $50 puts on National Oilwell Varco. The Motley Fool recommends National Oilwell Varco. The Motley Fool owns shares of National Oilwell Varco. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.