The continued crash of crude oil had a significant impact on National Oilwell Varco's (NYSE:NOV) fourth-quarter results, which were released before the market opened on Wednesday. The oil-field equipment maker's revenue slumped over last quarter, with earnings following suit. That trend is not expected to reverse course anytime soon, with the weakness in the oil market intensifying in early 2016. Challenge, however, brings opportunity, which is what the company sees on the horizon.

Drilling down into the numbers
National Oilwell Varco reported revenue of $2.72 billion, which was 18% lower from last quarter, and 52% below last year's fourth quarter. Earnings also slumped significantly, with the company reporting net income of $85 million, or $0.23 per share. That was well below the $0.61 per share the company earned last quarter.

One of the big drivers of the steep earnings slump was sales, general, and administrative expenses (SG&A), which actually increased 7.1% over last quarter. That reverses a key trend after SG&A expenses fell 15% sequentially last quarter, matching the decline in revenue.

The downturn in the oil market affected all aspects of National Oilwell Varco's business:

Segment 

Revenue

 

Operating Profit

 
 

4Q15

3Q15

4Q15

3Q15

Rig Systems

 $1 billion

 $1.5 billion

 $160 million

 $275 million

Rig Aftermarket

 $569 million

 $570 million

 $127 million

 $146 million

Wellbore Technologies

 $757 million

 $834 million

 ($31 million)

 $22 million

Completion & Production Systems

 $746 million

 $798 million

 $34 million

 $63 million

Data source: National Oilwell Varco.

The company's key rig systems segment was among the hardest hit, with revenue slumping 32% over last quarter, while operating profit plunged 60%. This quarter would have been even worse if it weren't for its backlog, which supplied it with $843 million in revenue during the quarter. While the company's backlog ended the year at just a shade over $6 billion, that's down 24% from last quarter. Furthermore, it was only able to capture new orders of $89 million, which is a huge decline from the $367 million in new orders it booked last quarter and an ominous sign for future revenue.

The wellbore technologies segment was also very weak this quarter. While revenue only drifted 9% lower, the segment operated at a loss during the quarter.

On the bright side, both the rig aftermarket and completion and production systems segments fared a bit better, with sequential revenue flat and down 7%, respectively. Both segments saw a significant drop in operating profit.

A look at the outlook
CEO Clay Williams summed up the company's issues and success in the fourth quarter, as well as what it sees in the near term by saying:

Tumbling oil prices brought capital austerity and sharply lower oilfield activity, which is intensifying as we enter 2016. Nevertheless, our consolidated revenue outperformed the decline in global rig count, and our cost reductions and operational efficiencies enabled solid cash generation.

As Williams points out, times are very tough -- and getting tougher. However, the company is still making money despite the significant drop in oil-field equipment spending. That solid cash generation, when combined with its strong balance sheet, positions the company to not only survive the downturn but to "take advantage of the opportunities we expect to emerge during 2016," according to Williams.

In particular, opportunities for M&A are expected to be on the rise in 2016 given the pressure on credit within the industry. A big driving force will be the financial distresses being felt by smaller companies that can no longer hold out hope for an eventual recovery. Once these sellers finally begin to lower their asking prices, National Oilwell Varco expects to use its financial strength to capture promising opportunities.

Investor takeaway
Times are very tough in the energy sector right now, and have grown even tougher in 2016. While that put a lot of pressure on National Oilwell Varco's financials, the company is continuing to make money and retains a very strong balance sheet. That should see it through to the eventual recovery, while providing it with the firepower to take advantage of compelling opportunities that appear to be right around the corner.

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