Today, a look at how good companies deal with adverse circumstances. Two dominant Japanese carmakers, Toyota and Honda, have had to deal with massive recalls and repairs from faulty airbag inflators. But both continue to benefit from strong international sales and a lower Japanese yen.

Faulty airbag inflators made by Takata Corp. have forced Toyota to recall 8.1 million vehicles since 2008, while Honda has had to fix 20 million cars.

However, these recalls likely won’t damage Toyota and Honda’s reputations or sales, as other big carmakers have also used Takata’s defective equipment. Meanwhile, both companies should keep benefiting from a low Japanese yen, which makes their products cheaper in foreign markets.

TOYOTA MOTOR CO. ADRs (New York symbol TM; www.toyota.com) is the world’s largest carmaker.

In its 2015 fiscal year, which ended March 31, 2015, Toyota sold 8.97 million vehicles, down 1.6% from 2014. North American sales rose 7.4%, thanks to strong demand for sport utility vehicles. (For a perspective on how rising U.S. sales continue to benefit both of these stocks, see our 2014 Wall Street Stock Forecaster article, Japanese carmakers get a currency boost).

Toyota’s European sales gained 1.8%. However, sales fell 8.9% in Japan and 7.5% in other parts of Asia.

Revenue declined 3.4%, to $241.0 billion from $249.5 billion, but revenue improved 6.0% in Japanese yen. Cost cuts and favourable exchange rates boosted earnings per ADR by 4.6%, to $12.31 from $11.77 (each American depositary receipt equals two Toyota common shares).

The company expects its fiscal 2016 sales to decline by 72,000 vehicles, to 8.9 million. Even so, its efficiency improvements should push up its earnings by 2.4%, to $12.60 per ADR. The stock trades at just 10.7 times that estimate. The $3.22 dividend yields 2.4%

Recommendation in Wall Street Stock Forecaster: BUY.

Growth stocks: Honda expects car sales to rise by 8%, motorcycle sales by 2.6% in 2016

HONDA MOTOR CO. LTD. ADRs (New York symbol HMC; www.honda.com) is Japan’s second largest carmaker and the world’s biggest motorcycle manufacturer.

In its 2015 fiscal year, which ended March 31, 2015, Honda sold 4.36 million vehicles, up 0.9% from 2014. New models increased Asian sales by 10.8%, but sales fell 0.6% in the U.S., 1.2% in Europe and 7.0% in Japan. Motorcycle sales rose 4.4%.

Revenue declined 8.3% in U.S. dollars, but was up 6.8% in Japanese yen. Earnings per ADR declined 21.9%, to $2.42 from $3.10 (each ADR equals one common share).

The company expects its car sales to rise 8.0% in fiscal 2016, while motorcycle sales will gain 2.6%. That should lift its earnings to $2.68 per ADR, and the stock trades at 12.3 times that estimate. The $0.80 dividend yields 2.4%.

Recommendation in Wall Street Stock Forecaster: BUY.