Weak oil prices continue to mute oil and gas activity, which has a direct impact on National Oilwell Varco's (NYSE:NOV) financial results. That was pretty clear when the company reported its third-quarter results before the market opened on Wednesday after revenue and earnings declined both year over year and sequentially. Unfortunately, there are no signs on the near horizon that things will get any better.

Drilling down into the numbers
National Oilwell Varco reported revenue of $3.3 billion, which was 15% lower than last quarter and 41% lower than the year-ago quarter. That pushed the company's net income down to $155 million, or $0.41 per share, which was well off from the $289 million, or $0.74 per share, it earned just last quarter. Having said that, the company did take $55 million in pre-tax asset impairment charges and $57 million in other charges. If we adjust for these one-time charges net income would have been $232 million, or $0.61 per share. Still not a great result, but it shows that earnings didn't completely fall off the table.

National Oilwell Varco experienced weakness across all four of its business segments:

 

Revenue

 

Operating Profit

 

Operating Profit %

Segment

3Q15

3Q14

3Q15

3Q14

3Q15

3Q14

Rig Systems

 $1.5 billion

 $2.7 billion

 $275 million

 $533 million

18.4%

20%

Rig Aftermarket

 $570 million

 $837 million

 $146 million

 $229 million

25.6%

27.4%

Wellbore Technologies

 $834 million

 $1.5 billion

 $22 million

 $278 million

2.6%

18.9%

Completion & Production Systems

 $798 million

 $1.2 billion

 $63 million

 $183 million

7.9%

15.4%

Source: National Oilwell Varco.

The company's Rig Systems business was among the hardest hit with revenue slumping 44% year over year as well as being down 23% from just last quarter. We can expect revenue to keep heading lower over the next few quarters because the company pulled $1.3 billion of revenue this quarter out of its backlog, but only replaced it with $367 million on new orders resulting in the backlog dropping to slightly more than $8 billion. That's 11% lower than last quarter and 44% lower than the year-ago quarter. If there was one silver lining in terms of the backlog it's the fact that new order bookings accelerated again after the company booked just $313 million in new orders last quarter, which was actually $77 million higher than the prior quarter.

The one segment that has been relatively resilient was the Rig Aftermarket segment, which only saw revenue decline 32% over the year-ago quarter and 13% sequentially. That segment's operating profit margin also held up relatively well. Unfortunately, the same can't be said for the Wellbore Technologies segment, which saw its operating profit margin plunge to just 2.6%.

Despite weak margins in Wellbore Technologies, National Oilwell Varco's overall margins have been holding up relatively well. That's largely due to the fact that the company has significantly reduced its costs since the onset of the downturn with SG&A expenses down 34% year over year, including a 15% reduction sequentially. This focus on costs has enabled the company to continue to make money during the downturn.

A look at the outlook
National Oilwell Varco will need to continue to manage its costs because the company doesn't see industry conditions improving in the near-term. CEO Clay Williams made this clear in his brief outlook in the earnings release by stating that,

The sharp decline in oil prices and activity since late last year has affected each of our segments, and will drive activity lower in the fourth quarter ... In the meantime, with limited visibility into the timing of a recovery, we remain focused on managing costs and improving performance, while continuing to develop technologies that help our customers to improve their returns in a lower commodity price world.

He also noted something interesting, suggesting that the company might be on the verge of something big. He said that,

We believe our strong financial resources will enable National Oilwell Varco to invest in the extraordinary opportunities that will arise from this downturn, and we expect to emerge with greater capability and efficiency.

This suggests the potential that the company could be involved in M&A activity, which has been on the rise since the downturn started late last year. One area to watch is the potential for the company to bid for assets that Halliburton (NYSE:HAL) and Baker Hughes (NYSE:BHI) need to sell in order to compete their merger agreement. Halliburton has run into a number of delays in closing the deal because of regulator scrutiny and one result of this is that the company recently offered to sell additional assets to win regulator's approval for the deal. Given the fact that National Oilwell Varco has historically been a buyer, having acquired more than 200 companies over the past decade, it suggests that it could be a bidder for some of the assets that Halliburton and Baker Hughes are selling.

Investor takeaway
With the oil market still in a rut, it's having a significant impact on National Oilwell Varco's business. That weight will likely hold the company down for quite some time because even after conditions improve it still needs to rebuild its shrinking Rig Systems backlog. Having said that, the company is eyeing opportunities that might arise due to the downturn, including the potential for some strategic M&A that could be around the corner.

Matt DiLallo owns shares of National Oilwell Varco. The Motley Fool owns shares of and recommends Halliburton and 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.