In order to accelerate the production, sales and distribution of EcoCradle Mushroom Packaging, Sealed Air Corporation (SEE) has inked a deal with Ecovative Design LLC. The financial terms of the deal remain undisclosed.

EcoCradle Mushroom Packaging is made from agricultural byproducts and mushroom roots called mycelium. The packaging product is fully biodegradable as well as renewable. Additionally, it requires less energy at the time of production.

Per the agreement, Sealed Air will be the licensee in North America for Ecovative’s mycelium based material technology. Earlier in January this year, Sealed Air teamed up with Ecovative Design to produce and sell the cost effective technology of EcoCradle Mushroom Packaging.

The collaboration will benefit Sealed Air in sustaining its SmartLife commitment that helps in reducing waste. Additionally, the packaging technology will fortify Sealed Air by augmenting its product portfolio.

We think the new packaging technology will give Sealed Air ample opportunities to explore in the field of packaging material, providing an alternative to petrochemical based packaging. Moreover, the new eco-friendly packaging technology is also expected to become a better choice in a world where going green to reduce global warming is increasingly becoming a burning environmental issue.

Sealed Air’s first-quarter 2012 results were weaker than expected due to low volumes at the recently acquired Diversey. Volumes were down 2% year over year, mainly due to the prevailing weakness in Europe and an unfavorable mix. Nearly 52% of Diversey’s sales come from Europe and, therefore, with no significant improvement in the economic conditions in sight, Diversey’s results are most likely to be jeopardized.

Further, to fund the acquisition and to repay the existing debt of Diversey, Sealed Air has increased its debt levels with debt-to-capitalization ratio going up to 62% as of March 31, 2012, compared with 36% as of September 30, 2011, prior to the acquisition. The rise in debt levels and the consequent increase in interest burden are the worrying factors for the company.

Sealed Air faces tough competition from companies like Bemis Company, Inc. (BMS) and Sonoco Products Co. (SON).The company retains a short-term Zacks 3 Rank (Hold). We have a long-term Underperform recommendation for the stock.

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