。
She greeted Mr. Kato with a smile.
Literal
She [topic-は] Kato-teacher [to-に] smile [with-で] greeted.
先生 ('teacher, master') is one of the broadest honorific suffixes in Japanese. It's used not just for schoolteachers but for doctors, lawyers, politicians, novelists, manga artists, and martial-arts masters — anyone with specialized expertise commanding respect. In direct address it usually replaces the person's name entirely; here, attached to the surname (加藤), it specifies who the teacher is. The で on 笑顔 marks manner ('with a smile'): same で you see in 大声で ('loudly'), ペンで ('with a pen'). あいさつ is a katakana-or-kanji rendering of 挨拶 ('greeting'), one of those concepts Japanese culture treats as foundational social glue.