* H1 operating profit 726 mln euros, up 2.6 pct
* Dia integration, retail tax weigh on French profitability
* Rest of Europe and Brazilian business strong
* Retailer sticks to 2015 capex, cash flow goals (Recasts with CEO comments from news conference, analyst, shares)
By Dominique Vidalon
PARIS, July 31 (Reuters) - France’s Carrefour said its turnaround plan was reaping rewards in Europe and Brazil, where strong performances helped it beat first-half profit forecasts.
The world’s second-largest retailer, which has suffered from a reliance on the hypermarket format it pioneered as customers shift to local and online shopping, is in the third year of a global recovery plan started by Chief Executive Georges Plassat.
The company, which makes about three-quarters of it sales in Europe, is making price and cost cuts and expanding into smaller convenience stores, while also revamping its hypermarkets.
Its operating profits in Europe - outside its home market - tripled in the first half of the year, while Latin American earnings rose by more than a quarter.
This countered a decline in its biggest market France, reflecting the integration of its recently acquired Dia stores, a rise in taxes on larger commercial spaces and the transfer of rental income from shopping malls to its Carmila property unit.
Plassat said Carrefour was on a “sustainable” growth path, with Europe a significant contributor to earnings, while the Brazilian business should continue to hold up well in the face of slowing economy.
Carrefour shares were up 0.34 percent at 1150 GMT, outperforming a flat European retail sector.
“In a still challenging environment for food retailers, this performance appears resilient and confirms our view that the group is well managed,” said Societe Generale analyst Arnaud Joly, who has a “hold” rating on the stock.
Europe’s largest retailer said first-half recurring operating profit rose 2.6 percent to 726 million euros ($806 million) at constant exchange rates, above the average estimate of 711 million in a Thomson Reuters I/B/E/S poll.
In France, which accounts for almost half of group sales, operating profit fell by 20.9 percent to 321 million euros.
In the rest of Europe, profit accelerated sharply in Spain and also rose in Italy.
Latin America was boosted by a strong performance in Brazil, its No.2 market, accounting for about 14 percent of sales, where Carrefour, unlike French rival Casino, is proving resilient to an economic downturn.
The retailer, which is stepping up a multi-billion euro investment in its stores to cement its recovery, kept its goal to raise cash flow this year and predicted debt of 5 billion euros by year-end, from 4.9 billion at end-2014.
($1 = 0.9003 euros)
Editing by Jason Neely and Pravin Char