US snack firm Diamond Foods has reported a fall in underlying annual profits – but said it expects earnings to improve in its new financial year.

The Kettle Chips manufacturer reported non-GAAP net income, which excluded one-off items, of US$9.7m for the year to the end of July. A year earlier, Diamond booked earnings of $12.7m.

The lower profits came on the back of a 12% drop in net sales to $864m. Sales were lower amid moves to cut SKUs from its nuts business and lower promotional spending on its Emerald brand.

On a reported basis, Diamond booked a net loss of $163.2m, almost double the $86.3m posted a year earlier. The company incurred $96.1m in costs to settle a lawsuit related to last year’s revelations that the group incorrectly accounted for payments to walnut growers. There were further charges from Diamond’s moves to restate accounts and costs linked to a change in the fair value in the investment private-equity firm Oaktree Capital Management made in the company.

In its first quarter, Diamond said it expects to face “significant” sales and contribution headwinds including costs associated with its Emerald re-launch and lower walnut supply.

“Despite expected increases in tree nut costs, fiscal 2014 is expected to be a year of earnings improvement as additional benefits from the execution of the multi-year turnaround strategy are realized,” the company said.