。
She smiled warmly while waving her hand.
Literal
She [topic-は] hand [object-を] waving [while-ながら] warmly smiled.
Two simultaneous actions connected by ~ながら: waving (振り) and smiling (にっこり笑った). にっこり is a 擬態語 (state mimetic) for a warm, beaming smile — not a grin or smirk, but a genuine, pleasant smile. The main verb (smiled) comes after ながら, making the smiling the focal action while the waving is the accompanying gesture.